A survey by the Federal Emergency Management Agency (FEMA) indicates that at least 40% of small businesses don’t reopen after a catastrophe, with businesses that lack adequate insurance coverage being more likely to face this situation. One of the main causes of underinsurance in the business space is the failure to reevaluate your business insurance needs regularly. To avoid such a situation, the Insurance Information Institute (III) recommends an annual reevaluation of all your insurance needs to identify your business’s underinsured and even over insured areas.
Here is a look at a few instances when reevaluating business insurance makes good sense:
- Increased Business Operations
Property damage, general liability, and business interruption charges are all covered by a business owner’s policy (BOP). However, as your business grows, its risk exposure also increases. Even if you had adequate coverage to begin with, reviewing and adding to the existing coverage will be required as your business grows over time.
- Adjustment in Your Workforce
According to the Department of Industrial Relations, the federal government requires every employer to purchase workers’ compensation insurance for their employees. This means that your workers’ compensation costs will largely depend on the size of your staff. Keeping this in mind, it is good business management practice to reevaluate your worker’s comp needs if you’ve increased or reduced your staff.
- Changes in Business Operations
Per the Corporate Finance Institute (CFI), examples of business operations include, among others, production, marketing, and selling. Any changes in the business operations can also affect the amount of business insurance you require. For instance, you may need to purchase expensive equipment and machinery to ramp up your production, translating to higher insurance costs. On the other hand, if you scale down your production, you may be able to dispose of some expensive machinery, equipment, or even business premises, leading to lower insurance costs. Either way, you should review your business insurance to avoid over-insurance and underinsurance.
- Relocation of Business Premises
Some areas in the U.S. are more prone to natural disasters such as floods, earthquakes, and wildfires. For instance, San Francisco, CA, is one of the cities that experience frequent earthquakes, as reported by the Southern California Earthquake Center (SCEC). If your business is located in a disaster-prone region, your business insurance costs will be higher than in other locations. Suppose you relocate your business or open a new office in an area that is safer from natural disasters. In that case, you should reevaluate your business insurance needs, especially if you want to lower your insurance costs.
- Changes in the Type of Goods or Services
Different industries face different risks. For instance, the transportation industry is particularly prone to car crashes, according to the Farm Bureau Financial Services (FBFS). On the other hand, consultant professionals such as lawyers and doctors are particularly vulnerable to litigation expenses. This means that shifting your business to such high-risk industries/professions might mean you should consider increasing your business insurance coverage. Conversely, you can also lower your coverage if you move from high-risk to low-risk products and services.
- Addition of New Products or Services
Adding new goods to your product line is good as long as you have adequate product liability insurance in case they turn out to be faulty or get stolen from your warehouse. You may be underinsured and liable for what would otherwise be a covered loss if you include them in your insurance coverage.
- Using Personal Vehicle for Company Purpose
It is crucial to have auto insurance for vehicles that your company owns or runs. However, you may also require coverage when your workers drive their personal automobiles on business-related trips. Even if your employees are insured under personal insurance, your firm might still be sued for an auto accident.
- Contracts with New Vendors and Clients
Getting new vendors and clients is excellent, but sometimes the contracts bind you to more than your present insurance covers. Some contracts may require you to carry specific types or amounts of coverage, such as professional liability insurance. Others may need you to add someone to your insurance.
Tips to Mitigate Risks
Apart from relocating to safer grounds, other ways to mitigate risks in your business include:
- Installing burglar alarms, cameras, and burglar-proof doors
- Installing smoke detectors and fire extinguishers
- Making your business buildings resistant to earthquakes
- Installing a strong cybersecurity infrastructure
When you perform such improvements to your business, you mitigate some of the risks that an insurance company takes to insure your business. This means that the insurance company will charge you lower premiums. That said, be sure to review your insurance once you improve the condition of your business premises.
In essence, reevaluating your business insurance gives you a chance to identify any coverage gaps in your business. For assistance with all your coverage needs and questions, contact the experts at Knight Insurance Services. Our dedicated team is eager to assist you in tailoring the perfect business insurance policy to meet your unique needs and situation.