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Navigating the Entrepreneurial Rollercoaster

4 Mins read

Why 75% of Small Businesses Are Unaware They Are Risking it All…While adrenaline junkie might not be the first thing that comes to mind when thinking of a business owner, this risk-taking mindset is at the core of an entrepreneurial spirit. The flurry of excitement and nerves that come with taking the leap to start your own business is nothing short of an adrenaline high. Whether opening your own bookstore, quitting your job to become an independent makeup artist, or running a small business that has grown to $100 million in revenue, the joy of a new endeavor can be intoxicating.

However, in the unpredictable world of entrepreneurship and small business ownership, where every decision feels like a chess move, there’s one piece on the board that often doesn’t get the attention it deserves – insurance. In fact, a recent survey by Hiscox USA, a leading small business insurer, found 75% all of small businesses in the U.S. are teetering on the edge of financial vulnerability because they lack sufficient insurance, raising the question: are you truly as safeguarded as you think?

Why do 75% of small business owners have insufficient insurance?

1. Can’t afford it

It’s no secret—starting a business is no small feat. Whether purchasing equipment, bringing on employees, or developing the product or service line, the cost of starting a business can feel overwhelming.  For many entrepreneurs and small business owners, as they see towering costs and unpredictable income, the thought of cutting corners on seemingly less immediate needs, like insurance, is appealing.

2. Apply a “one and done” mentality

For those small business owners who recognize the need for insurance, it is often viewed as a checklist item falling under the assumption it can be a “one and done” task. But here’s the plot twist: businesses evolve, and so do their needs. Much like taxes that are filed each year, insurance should be reviewed annually. For instance, according to the Underinsurance Survey, nearly half of small businesses have seen an increase in revenue since 2021. With the increased revenue and potential changes in the business as it grows, the insurance may now be like a parachute with a few holes. More than likely, they have outgrown their policies, putting themselves at risk should a claim be filed that exceeds the current insurance coverage.

3. Don’t understand their coverage

A business owner can wear every hat from accountant to manager to chief operating officer and more, so understanding yet another area of business operations like insurance and what their policy does and doesn’t cover is often at the bottom of their list. To put this into perspective, the 2023 Hiscox Underinsurance Report found that 71% of small business owners do not understand what a Business Owners Policy (BOP) covers, which is a prime resource for combining general liability with other coverage needed to protect your business. Compounding this is even greater confusion around General Liability (GL) coverage, which protects against claims from regular business operations with 83% of business owners, also found in Hiscox’s Underinsurance Report, failing to correctly describe a General Liability (GL) policy’s coverage. Many often think they have the coverage their business needs, but they do not.

4. Don’t realize they need it

Entering into the waters of the unknown is fraught with learning curves, new tasks and forgotten deliverables. For many small business owners and entrepreneurs, it’s difficult to know everything that is needed to successfully build a business. Some do not even realize they need insurance. Especially in the service industry – think IT or marketing consultant working from home or anyone who provides a professional service or gives client advice on a regular basis, professional liability insurance is critical. It serves to protect against a range of scenarios that general liability will not, e.g., alleged or actual negligence in the performance of professional services like giving incorrect advice or omitting a piece of important information; failing to deliver a service within a contracted timeframe; or personal injury claims from alleged libel and slander if the organization or an employee has said or written something damaging or untrue.

How do I sufficiently insure my business?

While the success of many small businesses is threatened by underinsurance, there are steps entrepreneurs can take to better protect themselves.

1. Speak with an expert

Before renewing or buying insurance, expert input is one of the best ways to determine the necessary coverage for your business. They have the tools to evaluate your business and guide you to the plan that will best protect your assets to help you succeed.

2. Tell your insurance agent everything

It can be difficult to tell the truth, the whole truth, and nothing but the truth, however, when speaking with an insurance agent, this is one of the best things you can do. By accurately representing your company and sharing the good, bad, and ugly, you are allowing them to use their expertise to provide you with the necessary coverage to protect your business.

3. Understand your blind spots

Reviewing your insurance coverage each year is a prime opportunity to address possible blind spots. To protect against this, here are a few questions to ask yourself:

  • What type of insurance do I currently have?

Understanding your current coverage is the first step to identifying potential vulnerabilities. By staying in tune with your coverage and the changes in your business, you can identify when it’s time for an insurance upgrade.

  • Have I hired more employees, contract workers, freelancers, etc.?

With the recent increase in contract workers and freelancers, many businesses do not realize the additional risk and liability they assume when hiring them to perform client work. Many owners mistakenly believe these individuals are covered by the company’s general or professional liability insurance or that they have their own insurance, but that is often not the case.

  • Have you purchased additional property/offices or business equipment since the last insurance review?

If you have recently purchased new offices or assets, e.g., tools or computers you rely on to do your work, this can trigger the need for new coverage to help protect those assets. Business equipment and property can be covered under a business owner’s policy which includes general liability insurance.

  • Do I have a remote work/hybrid format?

It’s often misconceived that when working from home, laptops, printers and other job-related equipment are covered through homeowners’ insurance, when in actuality it is not. A remote work setting typically requires business insurance to protect your work-related assets even though they are housed under your own roof.

Taking the leap to start a new business is an exciting and admirable one, but it can also be risky. You must ensure your business is not just surviving but thriving in the face of uncertainties. Protect yourself and your business, so you can watch your idea come to life.

Tyler Peterson is the Head of Professional Risks at Hiscox USA, a leading insurer for more than 600,000 U.S. small businesses, freelancers, contractors and others

Insurance stock image by PopTika/Shutterstock

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