Comprehensive insurance plans: Strategies for small business owners

It’s estimated that Hurricane Michael caused more than $4.5 million in damages when it hit Florida, Georgia and surrounding states in October 2018, including between $500 million to $1 billion in commercial losses alone.

The financial toll was even more severe when Hurricane Irma struck Florida in 2017— leaving behind roughly $50 billion worth of property damage and lost economic output. Navigating clean-up operations and frequent power failures proved to be challenging for business owners, especially since Irma left over 60% of the state of Florida without power. Plus, the uninsured costs of natural catastrophes, including weather-related natural disasters, totaled $344 billion in 2017 — a new record.

Several other natural disasters have caught local businesses off guard over the past year, including the city of Wilmington, N.C., which was practically cut off from the rest of the state due to extreme flash floods. Meanwhile, in Southern California, temperatures consistently soared above 100° F, threatening companies with frequent power outages and deadly wildfires. The reality is that frequent, severe weather events are no longer isolated to coastal regions.

Related: 6 preparedness tips for severe weather events

Protecting your small business

Small businesses already operate with a limited number of resources and employees are often tasked with fulfilling multiple roles. As natural disasters grow stronger and losses begin to mount, owners will find it even more difficult to bounce back. Even a few inches of flooding, for example, can cause tens of thousands of dollars in damage. If a business is forced to temporarily close due to a disaster, there is a 40% chance the business will never reopen.

The fact is many small businesses simply aren’t prepared to deal with the repercussions of a disaster striking in their area. According to a recent Insureon-Manta poll, 61% of small business owners don’t have a formal disaster recovery plan in place.

As dramatic, weather-related disasters like wildfires and hurricanes become more frequent and severe, small businesses have become more susceptible to:

• Extensive uninsured property damage or loss of other physical assets
• Longer business closures due to excessive debris
• Third-party vendors unable to supply necessary products or services
• Severe impact on revenue resulting in an inability to maintain employee payroll
• Fewer available resources to allocate to loans and business development
• Higher taxes as a result of government relief efforts

Related: The new reality of North America wildfire

Weathering the storm starts with the right insurance strategy

Small business owners need to prepare for the mounting challenges posed by violent changes in the global climate. One way they can minimize their potential losses is by forming strategic partnerships and investing in the right insurance coverage, including:

• Commercial property insurance: This policy helps businesses protect the equipment and resources they need for daily operations. This includes the physical building (if owned by the business) and its contents, such as fixtures, furniture, business equipment (computers, phones, etc.) and inventory. If business property is stolen, vandalized, or damaged by a covered natural disaster, commercial property insurance can pay to repair or replace the damaged items.
• Business interruption insurance: If a natural disaster strikes, business interruption insurance can help owners pay for things like lost revenue, day-to-day operating expenses, and temporary business relocation costs. This coverage is sold as an add-on to commercial property insurance policies.

Not all policies are created equal — and small business owners need to read the fine print, or consult their insurance expert to ensure they have adequate coverage. For example, property and business interruption insurance usually excludes coverage for damage caused by floods and earthquakes.

Additionally, wind and hail insurance does not include coverage for damages caused by floods, as water from the ground or surges is almost always excluded in the policy.

In addition to shopping for insurance, business owners should also consider creating a comprehensive disaster recovery plan to help minimize potential financial losses. The plan should document the procedures every employee will need to follow in the wake of a disaster.

It might include actions like migrating important documents to the cloud or an off-site backup server, identifying alternative resources in the company’s supply chain to ensure continuity for business operations or outlining how employees will communicate with one another during an emergency.

With day-to-day operations top of mind, it’s easy for business owners to overlook the financial ramifications of extreme weather on their businesses. As more frequent and severe natural disasters threaten small business operations, buyers will want to look for insurance specialists who can advise how to best protect their businesses.

Because insurance carriers and consultants look to differentiate themselves in the market, risk management services are often available at no additional cost. As a result, business owners should take full advantage of these services to ensure they are in the best position possible from both an insurance and business continuity perspective.

Related: 5 questions home-buyers should ask about coastal flooding

Joe Jonas is the Director of Wholesale and Consulting at Insureon. He can be reached at insureon@walkersands.com.