What types of insurance claims are most commonly incurred by small businesses and which are the most costly? The Hartford, a financial services company, performed a study that provides some answers. The insurer analyzed claims data from over one million policies purchased by small business owners. The data covered a five-year period and applied to liability, auto, and property claims.
There’s a 40 Percent Chance of a Claim
Most small business owners don’t expect to sustain any losses when they purchase insurance policies. They look at insurance as protection against extraordinary events. But losses occur more frequently than many business owners expect. According to The Hartford, 40 percent of small businesses will incur a property or liability loss within a 10-year period.
The Most Common Types of Claims
The Hartford’s analysis provides some insight as to the types of claims that small businesses can expect to make. The insurer cited the 10 most common types of claims incurred by small businesses and the percentage of such claims made.
- Burglary and theft—20 percent: The perpetrators of these crimes may be dishonest employees or outsiders.
- Water and freezing damage—15 percent: These include claims involving roof damage from snow or ice and damage caused by frozen pipes
- Wind and hail damage—15 percent: These can affect automobiles, outdoor equipment, and buildings and structures.
- Fire—10 percent: Fire is one of the most common causes of property damage, but many policyholders underestimate its destructive power.
- Customer slips and falls—10 percent: Almost any type of business can incur a slip-and-fall claim, but your company might be more vulnerable if customers or members of the public regularly visit your premises or work site.
- Customer injury and damage—Less than 5 percent: Customers can sustain bodily injury or property damage in accidents that don’t involve slips and falls. A customer might be injured in your office when something heavy falls off a shelf and hits him in the head.
- Product liability—Less than 5 percent: Your vulnerability to a product liability claim depends on a variety of factors, including the nature of your product and any warranties you make when you sell it.
- Struck by an object—Less than 5 percent: A wide variety of moving objects can cause injuries. Examples are cars and trucks, mobile equipment, and falling construction tools.
- Reputational harm—Less than 5 percent: These are third-party claims against small businesses for acts such as libel and slander. Plaintiffs can allege that their reputation was damaged by such acts.
- Vehicular accident—Less than 5 percent: A vehicle safety program can help prevent auto accident claims.
The Most Costly Claims
Some types of claims clearly occur more frequently than others. Yet frequency is only one aspect of claims that insurers consider. They’re also concerned with claim severity—the size of claims.
The Hartford calculated the average cost of claims for each of the 10 cited categories:
- Reputational harm: $50,000
- Vehicular accident: $45,000
- Fire: $35,000
- Product liability: $35,000
- Customer injury or damage: $30,000
- Wind and hail damage: $26,000
- Customer slips and falls: $20,000
- Struck by an object: $10,000
- Water and freezing damage: $17,000
- Burglary and theft: $8,000
Burglaries and thefts generated the largest number of claims, but the average claim amount was relatively small. Reputational harm and vehicle accidents were low on the frequency list, but high on the severity list.
The claims analysis conducted by The Hartford is based on the insurer’s own loss data. An analysis conducted by another insurer might yield different results, and different types of businesses can run different risks. For example, a restaurant might be more prone to fires or issues of food poisoning or liquor-related accidents.
The Hartford’s study nonetheless provides useful information for small business owners. It can help small firms decide where to concentrate their efforts to control losses.