66% of Small Businesses Are Missing This Policy

March 13, 2017
By: Voldico

A Nationwide-sponsored study from 2015 found that 75% of small business owners do not have a disaster recovery plan in place. Read on to learn why Business Interruption Insurance is an essential part of their risk management strategy and a great opportunity for upselling.

In August 2015, Nationwide released the results of a survey they commissioned, which conducted an online poll among 500 U.S. small business owners with fewer than 300 employees from June 8–19, 2015. 

The poll revealed that 75% of small businesses do not have a disaster recovery plan in place and 52% of those businesses estimated that it would take them upwards of 3 months to recover from a disaster. 

Additionally, 66% of those businesses do not have Business Interruption Insurance.

These numbers are quite staggering. This study clearly indicates there is not only a need to educate small business owners on why Business Interruption Insurance is an essential part of their risk management strategy. But it also presents a unique opportunity for you to show your small business clients that you're actively thinking about protecting their business.

What Is Business Interruption Insurance?

Commercial Property Insurance covers the physical loss from disasters like fire and wind damage. However, these scenarios only cover a portion of the type of damage a business can sustain after a catastrophe. Due to the risk of additional losses, insurance carriers developed Business Interruption Insurance, as an add-on to Property Insurance. 

Coverage can include:

  • Compensation for lost income if the business has to vacate the premises due to disaster-related damage (covered under their existing property insurance policy), such as a fire or wind damage
  • Reimbursement on fixed expenses, like electricity (which continue to accumulate even though business activities have stopped)
  • Temporary business relocation costs
  • Other reasonable expenses

Business Interruption Insurance does have some limitations, which you need to be aware of before you start selling. First, it is usually an endorsement to a Commercial Property policy, so the events that trigger one trigger the other. If the current Commercial Property does not cover wind damage, a client who needs temporary shelter after a tornado will not receive a Business Interruption payout either.

Additionally, Business Interruption Insurance has a waiting period (generally 48 hours) and a “period of restoration.” The coverage kicks in after the waiting period and only extends until operations are running again. Some policies limit the restoration period one year or less.

Tips for Selling Business Interruption Insurance

If your small business client is struggling financially, they may see Business Interruption Insurance as a luxury or unnecessary. In their minds, the disastrous events that bring operations to a halt are so rare that going without coverage seems like a safe bet. 

As an independent insurance agent, it is your responsibility to make sure your clients are fully covered in all situations.

Here are some tips for educating clients on why they need this additional coverage:

  • Target the right clients. Review your book for commercial clients who lack Business Interruption coverage and design a plan specifically for them. Select a delivery method (email, phone, mail) that is most likely to get their attention.
  • Tell a story. Numbers are effective, but so are real-life stories. If you do not have examples to share, there are plenty of case studies that demonstrate how destructive even small interruptions can be.
  • Get them thinking. Has your client considered how they will pay rent without incoming revenue? Working through budget items may help them see how much downtime they can (and cannot) afford.
  • Perform a risk assessment. Show clients how innocuous realities can turn into dangerous hazards. Being located next to higher-risk business (like a restaurant), depending 100% on the Internet for income transactions and/or being next to a busy intersection are just a few examples.
  • Assist their efforts. While insurance coverage is your primary concern, consider developing a marketing strategy to help educate clients about Business Interruption Insurance and disaster preparedness. 

Explaining this coverage and helping your clients find a policy that fits their needs is one way to build long-term customer relationships. When your clients know you are not selling simply for the sake of selling, they are more likely to trust you and recommend your agency.