Businesses rely on insurance protections for business assets, employees and operations, however common mistakes occur with insurance coverage that can leave a business vulnerable.
Here are five common insurance mistakes that businesses should avoid when navigating the complexities of commercial insurance.
1. Underinsuring your business
A business's assets and the cost of rebuilding or replacing them can increase dramatically. Businesses often get caught out by not insuring assets at correct and current valuation levels. This can result in financial impacts in the event of a claim where underinsured items are not paid in full.
With changes in business activity, asset upgrades, stock purchases and especially during times of inflation failing to account for changes in the value of assets and insurance coverage limits can leave your business underinsured.
Regularly review your sums insured to ensure the cover reflects increased values. Access up to date data on the total value of your property, equipment, inventory and liabilities to ensure the right level of coverage. These figures should reflect current replacement costs, not original purchase prices.
As business changes constantly, its insurance needs to keep up. Failing to review and update business insurance policies regularly can leave you underinsured or with limitations and coverage gaps. Take the time to reassess your insurance needs annually or whenever changes occur.
2. Not creating the right insurance cover program
Simply opting for standard insurance policies may not cover all the unique risks your business faces. Depending on your industry and operations, consider additional coverage options such as cyber insurance, business interruption or public liability insurance.
Insurance policies often have exclusions and limitations that define what is not covered, and these may vary according to the insurer. Failing to understand these provisions may result in unpleasant surprises when filing a claim. Carefully review your policy wording and access expert guidance from your insurance broker.
Location plays a significant role in insurance premiums and coverage. If your business operates in an area prone to natural disasters such as floods, or where there's a high crime rate, check that your insurance adequately covers these risks.
3. Overlooking the importance of risk management
In the complex landscape of modern business, being able to demonstrate effective risk management is a necessity.
Many businesses make the mistake of overlooking the importance of a robust risk management strategy and this can make accessing insurance challenging or more expensive.
Risk management is the process of identifying, assessing and prioritising potential risks to your business, followed by coordinated efforts to minimise, monitor and control the probability or impact of those risks.
Without undertaking and documenting this foundational step businesses may be inadequately prepared for unforeseen events ranging from natural disasters and cyber attacks to employee injuries and supply chain disruptions.
4. Failing to analyse data and claims trends
Businesses are inundated with data, and this can be harnessed to deliver insights when it comes to insurance. Analysing claims data, trends and delving into past claims can help with identifying patterns that can inform future risk management strategies.
Small businesses could look for claim risks by assessing their operational activity, any prior claims and by understanding growing risk trends for their industry or type of business.
For instance, a consistent spike in employee liability claims in a particular department could indicate underlying safety issues that need addressing. Similarly, an uptick in property damage claims during specific seasons might reveal vulnerabilities that could be mitigated with preventive measures. This analysis can help to pinpoint areas of concern that could be rectified to reduce business risks and future claims.
Understanding claims trends can also enable more informed negotiations with insurers. When businesses can demonstrate a data-driven approach to risk management, they are often in a stronger position to secure favourable terms and premiums. For small businesses, insurance options can be influenced by claims insights and working with an insurance broker to guide renewals and negotiate insurance choices.
Conversely, a lack of awareness can result in settling for generic policies that may not be tailored to the business's unique risk profile, potentially leaving critical exposures unaddressed.
5. Not consulting with an experienced insurance broker
Insurance can be complex, and making uninformed decisions can have severe consequences. Working with an insurance broker who understands your business and industry and can provide detailed considerations around risk and insurance can help guide you through the process of selecting the right cover for your business to ensure your business is adequately protected.
How Gallagher can help
Avoiding these common insurance mistakes is critical to protecting your business effectively. By investing time and effort into understanding your insurance needs, working with knowledgeable professionals and regularly reviewing and updating your policies, you can avoid potential pitfalls and ensure your business is adequately protected.
