When it comes to doing business, it’s impossible to avoid challenges. Whether you’re just starting out or you’ve been operating for many years, risks and problems are commonplace. That is why it would make sense for business owners to make investments that lessen their risk and allow them to manage problems efficiently and cost-effectively when they arise in the future. This is where commercial insurance comes into play.
Commercial insurance is a contract or policy that an insurer extends to businesses in order that they might protect their normal business operations against losses due to unexpected events. These unexpected events can cover a myriad of perils or contingencies, such as natural disasters, accidents, lawsuits, and many more leading to a commercial claim.
According to Forbes, the most common insurance claims for small businesses in the country are burglary and theft, water-related damage, wind and hail damage, and workplace fires.
The point is: Commercial insurance covers your business from unexpected losses. It can help your business recover faster or continue to operate amidst a risky environment. In short, it could make or break the future of your business.
If you’re thinking about getting commercial insurance for your business but aren’t 100% convinced yet, here are some of the top reasons why commercial insurance is important and why you might consider investing in one.
Fulfills a Legal Requirement
According to the U.S. Small Business Administration (SBA), the federal government requires all businesses to have workers’ compensation insurance, unemployment insurance, and disability insurance.
You might be required to have additional insurance too, but this varies by state. For instance, professional liability insurance is required for doctors who practice in Wisconsin, Colorado, Rhode Island, Connecticut, New Jersey, Kansas, and Massachusetts. Other types of commercial insurance that may be required by some states include disability insurance and commercial auto insurance.
In addition, some types of insurance might be necessary or mandatory in certain types of contracts. For instance, in lease agreements, you might be required to purchase rent insurance. Business loans from the SBA or banks might also include in their requirements some type of insurance such as hazard insurance.
Protects Your Business from Unexpected Losses or Damages
Businesses – no matter the size – face the risk of unexpected damages or losses. This can arise from various sources, such as lawsuits. In the annual Allianz Risk Barometer report, 3,069 risk management experts from 92 countries ranked their most important corporate concerns for 2024. The result were as follows:
- Cyber incidents
- Business interruption
- Natural catastrophes
- Changes in legislation and regulation
- Macroeconomic developments
- Fire, explosion
- Climate change
- Political risks and violence
- Market developments
- Shortage of skilled workforce
In the U.S., the top three risks are cyber incidents, business interruptions, and natural catastrophes.
Cyber incidents
According to the report, risk management experts are mostly concerned about data breaches, cyberattacks on critical infrastructure and physical assets, and a rise in ransomware attacks.
“It’s no surprise that cyber is the top concern for businesses globally,” says Michael Bruch, Global Head of Risk Advisory Services at Allianz Commercial. “Businesses and the wider economy are now reliant on digital services and infrastructure for both critical and everyday activities. Almost everything is now linked to technology. But once you are connected it opens the door to hackers to steal data or threaten disruption for extortion.”
Should your business become the victim of a cyberattack, cyber liability insurance can help cover financial losses, privacy investigations, and resulting lawsuits.
Business interruptions
In an interconnected world, many companies maintain a just-in-time model of manufacturing, but with low levels of stock comes the risk of disruption in the supply chain distribution and business operations. This risk was magnified during the pandemic.
When business operations are suspended, you lose income. But, with business interruption insurance, you have a hedge against monetary losses due to suspended operations brought about by a covered event.
Natural catastrophes
In the U.S., floods, tornadoes, hurricanes, wildfires, and earthquakes are common natural disasters. If you’re operating from an area that is prone to any of these natural catastrophes, then you have to protect your business in the event that a disaster strikes. This is a particularly prudent action in the wake of rising incidents of natural disasters.
“Nat cat events, particularly those related to weather and climate, are expected to increase and therefore they will have an impact on the insurance industry, from model updates to pricing and underwriting strategies,” explains Mabé Villar Vega, Catastrophe Risk Research Analyst, Allianz Commercial.
Investing in commercial flood insurance, for instance, is a good way to safeguard your physical business location from flood damage.
Protects Your Business’ Stakeholders
When you have a business, it’s not only your interests that you have to protect. You should also be looking out for your employees and clients, and one way of doing that is by getting commercial insurance.
Protects Management
Lawsuits are a constant threat to any business. Getting the right commercial insurance policy can help you cover legal fees and other costs associated with any legal action filed against your business. For instance, management liability insurance reduces risks arising from unfair dismissal and sexual harassment allegations.
Protects Your Employees
As mentioned, businesses are mandated by law to have unemployment insurance, workers’ compensation insurance, and disability insurance. Workers’ compensation insurance, for instance, provides coverage when your employees suffer from work-related injuries or illnesses.
Having medical, life, and death benefits also play a role in attracting and retaining employees.
Protects Your Customers
Businesses do their best to keep their premises safe and secure for both employees and customers. However, there will always be a risk that a customer might slip or fall, for instance, in which case you will have to pay for their medical expenses.
Hospitalization can be a huge cost, which you’ll have to pay out of pocket if you don’t have a Business Owner’s Policy (BOP). A BOP policy combines business property and business liability coverage, so your business will be protected from property damage, product liability, bodily injury, and personal and advertising injury.
Builds Credibility
People prefer dealing with businesses that have the appropriate measures in place to protect their interests. When you have commercial insurance, you’re telling your clients, employees, and other stakeholders that you’re serious about managing risks, especially as it relates to them. As a result, you’re not only providing your business and its stakeholders adequate protection from risks, you also receive a boost in credibility.
