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What are the Most Common Business Insurance Claims?

Business Insurance Claims

There are a lot of questions small business owners have before they buy business insurance. First and foremost, they want to know about the price of business insurance, but the real concern is whether will it protect their company from costly business insurance claims.

Small business insurance is one of those things you buy, but never want to use. However, accidents do happen. In fact, they’re happening more than previously assumed. In a recent study, our insurance carrier partner The Hartford concluded that 40% of all small businesses would have a business insurance claim in the next ten years.

The Hartford’s business insurance claim study

Using five years of claims data, The Hartford analyzed claims outcomes to understand what the most common business insurance claims were. The study was intended to better understand the frequency and severity of business insurance claims.

What are claim frequency and severity?

When insurance companies analyze their claims data, two important statistics are the frequency and severity of claims. While these are common terms among insurance professionals, they are not widely understood by policyholders. Let’s break it down for you.

When we talk about claims frequency, we are talking about the number of claims filed by policyholders over a period of time. On the other hand, claims severity deals with the average amount the claims cost. The two metrics work together to help the insurance company understand if claims costs are rising or lowering over time. This is called the pure premium.

Pure Premium = Frequency x Severity

As the pure premium changes, insurance carriers want to know why. Did we receive more or fewer claims, or did the average claim costs change?

Some business insurance will have fewer claims, but if they do have claims, these losses tend to be more severe. For example, professional liability and workers’ compensation claims don’t happen very often, but both types of claims are more costly to settle. Moreover, some types of claims happen more frequently, but don’t cost much to settle, while others happen less often, but are almost always severe.

The most common business insurance claims

It should come as no surprise, the most common business insurance claims arise from the property & casualty lines of business. While business owners do benefit from employers’ practices liability insurance, the headline-grabbing harassment claims didn’t make the list. Additionally, with the rise in cybercrime, cyber liability claims we also missing. However, business owners are well served to manage their cyber liability risk.

Below is the distribution of claims types, as segmented by The Hartford study:

#1 | Burglary & Theft Claims (20%)

Business owners typically think of these claims as being performed by outsiders, or career criminal types. However, they’re frequently committed by dishonest or disgruntled employees.

Mitigation Tip: It’s recommended that all small business owners conduct background checks on employees. Make good use of fences, gates, and good lighting to discourage thieves. Consider using electronic entrance controls to access the business, and invest in a security system.

#2 | Water & Freezing Damage (15%)

These losses occur as a result of poor plumbing maintenance, lack of attention to running water, or weather condition that may be out of your control.

Mitigation Tip: Businesses can avoid freezing losses by clearing roofs of snow and ice, and maintaining an adequate temperature indoors so pipes don’t freeze. Water losses can be avoided by training key workers how to shut off the water, and making sure old plumbing is upgraded. Note: the water losses referred to here do not include flood. Flood is not normally covered in a commercial property policy.

#3 | Claims From Wind and Hail (15%)

Mitigation Tips: Businesses can mitigate these types of risks by properly maintaining trees, anchoring outdoor equipment or furnishings, and protecting windows from flying objects.

#4 | Fire & Smoke Claims (10%)

Mitigation Tip: A good way to reduce these types of losses is to have well-maintained fire detection and suppression systems in place. Have it tested periodically. If your company works with flammable materials, you need to have a good employee safety and training process. Lastly, you should conduct periodic fire drills to make sure employees know the evacuation plan.

#5 | Customer Slips & Falls (10%)

Mitigation Tips: This one is fairly simple to mitigate by making sure you practice good housekeeping and proper maintenance.

#6 | Customer Injury & Property Damage (Less Than 5%)

Customers can sustain injuries at business locations in ways other than slips and falls. For example, customers can receive burns from a hot liquid (like coffee), falling tools or equipment, or an overprotective bouncer at a club.

Mitigation Tip: Employee training and procedures can help to reduce these types of risks.

#7 | Product Liability Claims (Less Than 5%)

If your business manufactures or distributes products, your business is vulnerable to product liability claims.

Mitigation Tips: To avoid these types of claims, businesses should engage in hold-harmless agreements with suppliers, keep good records, and monitor complaints from customers. They should also manage their supplies and imported goods carefully, and ensure their products comply with industry and government safety standards.

#8 | Struck by an Object (Less Than 5%)

A wide variety of moving objects can cause injuries. Examples are cars and trucks, grocery carts, mobile equipment, and falling construction tools. 

#9 | Reputational Harm (Less Than 5%)

Businesses may be sued by third parties for acts like libel and slander that allegedly damaged the plaintiff’s reputation. To avoid such claims, businesses should refrain from criticizing competitors publicly. They should also obtain permission from content owners before posting content on their websites.

#10 | Vehicular Accident (Less Than 5%)

Businesses can help prevent accidents by instituting an automobile safety program. They can also ask their insurer or agent to review employees’ motor vehicle reports.

Which claims cost the most?

In addition to the most common business insurance claims, the study also analyzed which were the most severe, or costly. This is the other half of the pure premium calculations. From above you can see Burglar & Theft was the #1 most common business insurance claim but is the least expensive.  Here’s the insurer’s ranking based on severity.

  • Reputational harm (libel or slander): $50,000
  • Commercial auto accident: $45,000
  • Property fire: $35,000
  • Product liability: $35,000
  • Customer bodily injury or property damage: $30,000
  • Wind and hail damage: $26,000
  • Slip & fall claims: $20,000
  • Water & freezing damage: $17,000
  • Struck by an object: $10,000
  • Burglary & theft: $8,000

The study confirmed that liability claims are more expensive to settle. In fact, if a claim results in a lawsuit, the costs increase even further. This is noteworthy because the study also concluded that general liability insurance claims ended in a lawsuit 35% of the time.

What can the business owner take away? 

  • Business insurance claims happen more frequently than previously thought. Be prepared and have the right insurance coverage.
  • In the next ten years, roughly 40% of small business owners can expect to file a business insurance claim. This means your business insurance premiums may actually provide some form of ROI.
  • Insurance claims vary in frequency and severity. In fact, some claims can have a high frequency but result in low severity.
  • Liability claims tend to be more costly. Make sure to keep the liability policy paid. 🙂
  • Business insurance claims can be mitigated or even prevented through good risk management.

The bottom line

Understanding where the most common business insurance claims come from can help small business owners re-think how they set up their operations, their risk mitigation, and their ongoing employee training programs. All of these can help to reduce the risk of future insurance claims.

You can always consult with your insurance agent, they have resources provided by the insurance company to help clients think about their risk management strategies. If you don’t have an agent, contact us, or start a quote online and an agent will gladly provide you with a consultation.

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