In recent years, the United States has been impacted by devastating weather events, many unprecedented and unexpected. According to the Environment America Research and Policy Center, more than 15 million Americans live in counties that have averaged one or more weather-related disasters per year since the beginning of 2006.
While small business clients who have faced weather-related issues may be aware of the risks, there are thousands who ignore the impact a disaster can have on their business. But it’s not only significant weather events that can constitute a disaster. Underinsurance can be an even greater issue for many business owners. In fact, 75 percent of businesses in the United States are underinsured by 40 percent or more, according to Marshall & Swift/Boeckh.
Insurance professionals know all too well that if a business is underinsured and a loss occurs, it may be impossible to keep the doors open. SCORE, a nonprofit association dedicated to helping small businesses, even suggests that a full 40 percent of businesses never reopen after a disaster. Insurance agents have an opportunity to solidify their client relationships by taking time now to reach out and to discuss how a comprehensive and appropriately valued insurance program combined with proactive business continuity planning are keys to sustaining a client’s long-term success.
Insurance to Value
Most business owners know enough to request a business owner’s policy (BOP), which covers property and general liability. This is certainly an important foundation for any insurance plan, but sophisticated agents should use this only as a starting place. Without a thorough discussion of the business’s risks and liabilities, a BOP can only go so far. The policy and any endorsements should carry adequate limits for all essential coverages, which include: property, general liability, business income, business continuity and workers’ compensation.
Busy owners value items such as desks, computers or other office equipment at a certain price in their mind. But without taking the time to actually add up the new replacement value of those items, it’s all too easy to underestimate.
Entrepreneurs who own their own buildings are at a greater risk of underinsurance. Construction costs have increased significantly in the United States in recent years. As an example, between the second quarter of 2010 and the third quarter of 2011, copper piping rose almost 27 percent, steel rebar increased almost 16 percent and lumber increased nearly 12 percent (4Q2011 RCT Product Bulletin).
Unless your client is in the construction industry, underestimating rebuilding costs is almost a guarantee. Adding to that, many owners mistakenly believe the cost to rebuild and the current market value of the property are one and the same. With real estate prices still significantly depressed across most of the country, owners are putting themselves in a precarious position if a disaster occurs and they find themselves only insured for a fraction of the cost to rebuild.
Proactive Risk Management
No doubt, the opportunity to provide valued guidance on the right levels of insurance is an important role for today’s savvy agent. But insurance coverage alone won’t keep a business operational after a disaster.
A survey of small business owners conducted by Travelers found that almost half of small businesses (44 percent) are operating without a business continuity plan.
Taking the time to develop (or revise) a business continuity plan can feel daunting for already over-burdened business owners. Independent insurance agents who spend time breaking down the process into easy-to -execute steps can go far in establishing long-term relationships with their customers. The plan can include everything from documenting important phone numbers to identifying locations of back-up data.
Travelers offers a more in-depth guide online, but a good guideline to use when working with customers should include these five steps:
- Conduct a threat assessment;
- Identify and review important business functions;
- Perform a business impact analysis;
- Develop a prevention and mitigation strategy; and finally,
- Implement and maintain the plan.
These plans can provide the necessary roadmap to handle a crisis, but they are only impactful when communicated effectively and frequently with employees. Once a business continuity plan is developed, owners should walk their employees through different scenarios that can significantly impact a business and explain how to manage the circumstances.
Insurance professionals who spend the added time diving deeper into their customers’ needs will likely find themselves rewarded with repeat business and long-term client relationships. Shedding light onto the serious risks associated with underinsurance and improper risk management can go far in helping small business customers continue to thrive — even if disaster strikes.