For small business owners, the process of purchasing adequate insurance has typically been fraught with time-consuming distractions and more questions than answers. However, today, a number of companies are trying to make it easier to buy what's needed to properly protect a business.
State insurance requirements, antiquated sales models and multiple policy types can make the business insurance process confusing to small business owners. As Generation X and millennials increase their business ownership (these generations are expected to own more than 60 percent of small businesses by 2020), their affinity for simplicity and quick delivery in a digitized world will require the insurance market to make changes – something it's historically been slow to do.
The fact that one must demystify business insurance for small business owners is a problem in itself. Still, many business owners have misconceptions about the types of insurance they should carry. There is a number of reasons for this. Insurance, especially business insurance, is often sold through a legacy business model that requires involvement from multiple companies and can take days just to get a simple quote. For years, the decision about which policy to buy has been placed on the insurance agent, not the small business owner. The lack of control has easily left small business owners confused as to what insurance is required and what is recommended. In addition to an antiquated sales model, each state has its own requirements for the types and minimum liabilities a business must purchase, increasing confusion among business owners with operations in multiple states.
Here, we've outlined business insurance types that every small business owner should consider.
Workers' compensation coverage is among the least friendly policies to purchase, but one of the most important for protecting employees and the business itself in the event of a workplace injury or illness, which is far more common than many small businesses may foresee. The United States Department of Labor estimates that employers pay an average combined $1 billion per week for direct workers' compensation costs.
Workers' comp protects small business owners from being sued by an employee when an injury or illness happens on the job. In addition, workers' comp insurance generally helps companies get their employees to return to work more quickly, bringing injured workers to the specialists most able to help them recover.
In other words, beyond the direct costs uninsured employers must pay and the legal requirements, workers' comp helps businesses avoid the costs associated with absenteeism, in terms of both lost production and hiring temporary support. Unfortunately, a study by Insureon and Manta found that one-fourth of small businesses lack workers' compensation coverage, placing their livelihoods as business owners at risk, as well as finding themselves open to financial penalties and possibly felony charges or jail time.
Digitizing the insurance experience
Companies like BiBerk and Pie Insurance have started to sell policies online, directly to small business owners. This has allowed these owners to focus on their businesses, rather than taking time to navigate a complex business insurance process. Data from Pie Insurance shows the busiest time of the week for selling policies is afternoons on Saturday and Sunday, precisely when agents aren't available.
Workers' compensation isn't the only insurance being transformed. Insurers are shifting their approach to empower small business owners with direct-to-business online purchasing across various lines.
Business owner's policy
Similar to individual homeowner's or renter's insurance, BOP allows small businesses to have three areas of coverage: property insurance, business interruption insurance, and liability protection. BOP is often offered as a package of insurance policies, creating savings and a variety of options for small business owners. The most common business insurance claims that fall under BOP are damage from wind, hail, water and freezing, fires, and customer slips and falls, all of which average more than $15,000 in claims. Digital disruption in BOP is still nascent, but companies like CoverWallet are gaining traction.
Commercial auto insurance
Once a business owns and uses vehicles for its operations, commercial auto insurance becomes legally required for liability protection in case of an accident and financial loss from any car theft. Without this insurance, small businesses would face unbearable commercial auto costs related to accidents – as high as $45,000, according to a study by The Hartford. This ignores "catastrophic claims," which easily reach into the millions of dollars. Progressive Insurance is among the leaders selling commercial online to small business owners.
On average, an employee is sent nine malicious emails per month, causing unsuspecting employees to fall prey to increasingly vile attacks. Small businesses lose an aggregate $2.3 billion annually as a result of cyberattacks, half of which is attributed to damage and theft of IT assets, and half due to the disruption to normal business. Small businesses that purchase cybersecurity insurance mitigate losses from incidents such as network damage, data breaches and business interruption. Despite the digital nature of what it covers, cyberinsurance is still very new to digital sales, with CoverHound spearheading the charge.
While the experience of purchasing insurance has historically been burdensome to small business owners, multiple companies are attempting to simplify the process. Soon, small business owners will no longer have to take time out of their workday to see an insurance agent, and the mobile flexibility of purchasing and managing services online will be common.