As a small business owner, you may think that insurance is just another expense to add to your already long list of expenses. However, not having adequate insurance coverage can have a significant impact on your business’s financial wellbeing.
In this post, we will explore what under-insurance is, the risks and consequences of under-insurance, the different types of insurance small businesses might need, and how to choose the right insurance to protect your business.
Small businesses are the backbone of the UK economy, accounting for more than 99% of all businesses. However, many small businesses are under insured, which can have serious financial consequences.
Under-insurance occurs when a business has insurance coverage, but the coverage is not enough to cover the full value of the business’s assets or potential losses.
According to our partners FloodFlash, 80% of the world’s catastrophic flood losses aren’t insured. That’s £47bn of uncovered damage, and it’s getting bigger each year due to climate change, population growth, and urbanisation!
It’s bad news for business owners as commercial properties are 2x more likely to be at risk from flooding compared to the average property in Britain. Small businesses without adequate insurance coverage often struggle to recover from unexpected losses, such as natural disasters or theft.
What is Under-insurance?
Under-insurance occurs when a business does not have sufficient insurance coverage to protect against potential losses. This can happen for a variety of reasons, such as underestimating the value of assets, failing to update policies as the business grows, or simply not understanding the coverage that is needed.
For example, a business might only insure their property for £50,000 when it’s actually worth £100,000. If a fire were to occur that caused £75,000 in damages, the business would only be reimbursed for half of the costs, leaving them responsible for the rest.
The Consequences of Under-insurance
The consequences of under-insurance can be devastating for small businesses. In addition to the financial losses that occur as a result of property damage or theft, businesses may also face legal fees and reputational damage if a customer or employee is injured on the premises. These costs can add up quickly, and without adequate insurance coverage, a business may be forced to close its doors.
According to a survey conducted by the British Insurance Brokers’ Association (BIBA), 80% of UK businesses are underinsured, leaving them vulnerable to financial losses in the event of an unforeseen disaster. This is a staggering statistic, and one that should be taken seriously by small business owners across the country.
There are several reasons why small businesses might be underinsured, such as a lack of awareness or a belief that insurance is too expensive. However, the potential financial impact of under-insurance is far greater than the cost of insurance coverage.
Now that we understand the risks and consequences of under-insurance, let’s explore the different types of insurance that small businesses might need. The most common types of insurance for small businesses are;
- Liability insurance: This type of insurance protects a small business against legal claims made against it, such as personal injury or property damage claims. It can also cover legal defense costs.
- Property insurance: This type of insurance covers damage to a business’s physical assets, such as buildings, equipment, and inventory. It can also cover business interruption losses.
- Business interruption insurance: This type of insurance covers lost income and other expenses that occur when a business is unable to operate due to a covered loss, such as a fire or flood.
- Cyber insurance: This type of insurance protects small businesses against data breaches, cyber-attacks, and other cyber-related incidents.
It’s essential to assess your business’s risks and needs in order to determine which types of insurance you need. For example, a business that operates from a physical location may need property insurance, while a business that stores sensitive customer information may need cyber insurance.
Choosing the right insurance for your small business can be overwhelming, but there are several factors to consider when making this decision. Here are some tips to help you choose the right insurance for your small business:
- Assess your risks: Identify the risks that your business faces, such as theft, fire, or cyber-attacks.
- Determine your coverage needs: Once you’ve identified your risks, determine the amount of coverage you need to protect your business adequately.
- Shop around: Ask your broker to compare insurance policies from different providers to find your business’s best coverage and price.
- Consider bundling policies: Bundling policies, such as liability and property insurance, can save you money and simplify your insurance coverage.
The good news is that under-insurance can be prevented with some simple steps. The first step is to accurately assess the value of your assets and determine the level of coverage that is needed. This may involve hiring a professional appraiser or working with an insurance broker to ensure that you have the right coverage. It’s also important to review your policies regularly and update them as your business grows or changes. This will ensure that you always have adequate coverage to protect against potential losses.
Another way to prevent under-insurance is to work with a trusted insurance provider. FSB Insurance Service offers a range of insurance services for FSB members, including property insurance, liability insurance, and business interruption insurance. These services are designed to provide small business owners with the protection they need to keep their businesses running smoothly, even in the face of unforeseen disasters. You can even access property valuation services with our partners at CPA at a discounted rate.
FSB Insurance Service is a valuable resource for FSB members needing adequate insurance coverage. We offer a range of insurance products specifically designed for FSB members and their businesses. We work with a range of insurers to provide comprehensive insurance packages, including liability, property, cyber, and more. By working with FSB Insurance Service, you can be sure that you are getting the right coverage for your business, at a price that suits your budget.
In addition to providing tailored insurance coverage, FSB Insurance Service offers expert advice and support. Our team of insurance professionals can help you navigate the complex world of insurance and ensure that you have the right coverage in place to protect your business.
So, by understanding the risks of under-insurance, and taking steps to prevent it, small business owners can protect their businesses and ensure their long-term success. And by working with FSB Insurance Service, FSB members can access the insurance coverage and expert support they need to protect their businesses and thrive in today’s competitive business environment.