Running a successful small business requires more than the ability to generate revenue. It also requires the ability to avoid (or at least limit) losses. Though revenue can make a business blossom, losses can make it wilt. Oftentimes, what makes a small business successful is the ability to understand operational risks and implement appropriate protective measures for the day those risks become a reality.
To do this, small businesses must first understand the risks they face. This isn’t always easy because risk exposures may be affected by business operations. Nevertheless, there are some risks that generally apply to all small businesses. Consider the followings lists created by The Hartford after analyzing five years of claims data from more than 1 million business policies.
Most Common Property and Liability Claims
- Burglary and Theft (20%)
- Water and Freezing Damage (15%)
- Wind and Hail Damage (15%)
- Fire (10%)
- Customer Slip and Fall (10%)
- Customer Injury and Damage (less than 5%)
- Product Liability (less than 5%)
- Struck by Object (less than 5%)
- Reputational Harm (less than 5%)
- Vehicle Accident (less than 5%)
Costliest Property and Liability Claims
- Reputational Harm ($50,000)
- Vehicle Accident ($45,000)
- Fire ($35,000)
- Product Liability ($35,000)
- Customer Injury and Damage ($30,000)
- Wind and Hail Damage ($26,000)
- Customer Slip and Fall ($20,000)
- Water and Freezing Damage ($17,000)
- Struck by Object ($10,000)
- Burglary and Theft ($8,000)
Risks that are both common and costly, like fire, obviously require special attention. However, a proper risk assessment must go deeper. Note how burglary and theft rank as the least costly, but most common claim. Similarly, two of the costliest claims, reputational harm and vehicle accidents, are among the least common. This is significant because risk is a product of likelihood and severity.
Small businesses can use this information as a starting point. However, a comprehensive assessment requires analyzing exposures within the context of specific business operations. For example, a small convenience store is likely to have a higher risk of customer slips and falls than a large wholesale warehouse. Cyber risks are also likely to be greater for an online technology company than a traditional brick-and-mortar operation.
Though a standard Business Owners’ Policy may be sufficient, specific business operations may require additional coverage. Since it’s not always easy to see how operations may affect risk, small businesses should work with an experienced and reputable insurance agent.
If you would like to learn more about identifying and protecting against business risks, please contact us.
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