According to research from Marshall & Swift/Boeckh, up to 75 percent of businesses in the U.S. are underinsured by 40 percent or more. Plenty of these businesses find out the cost of this mistake too late in the midst of a claim where their business might not recover fully. An uninsured or underinsured company can suffer from reputation damage, non-compliance consequences, legal action, decreased revenue and even total business loss.
No business insurance policy is "set it and forget it." Changes to your business need to be communicated to the insurance carrier in a timely fashion to ensure that you’re protected in the event of a loss or claim. Since nearly all companies in the U.S. are small businesses — a whopping 99.9 percent, according to SBA.gov — it often falls on the owner who wears many hats to ensure that the insurance policies are up to date and provide accurate coverage.
How Has the Pandemic Impacted the Business Insurance Landscape?
Business insurance has been a key benefit turned to or invested in by many company owners who experienced the ripple effects of a global shutdown. Here are a few ways that’s played out with regards to business insurance:
Virus exclusions for business interruption insurance: One of the biggest challenges for many of those companies had to do with policy exclusions added by insurers following the SARS outbreak in the early 2000s.
Vacancy provisions: Some small business insurance policies have a vacancy provision if a property is not being used for 60 days or more that can reduce or remove coverages.
Business loan requirements: Certain government programs like the SBA EIDL loan require companies to maintain specific coverage, even for a home-based business.
Do I Need to Notify My Insurance Company? 7 Cases When It’s Time for an Update
An annual review of important documents, programs and policies for your business should always include an evaluation of existing insurance.
Most owners are already well aware of the risks of opening their own business. But the risks don’t stop there — maintaining a successful business requires significant work, especially as the company expands into new markets or locations, grows financially and hires more employees.
Since the average lifespan of a business in the U.S. is 8.5 years, this requires a savvy owner-operator who can continue to adapt and evolve the business's needs. Here are the most prominent reasons to notify the insurance company about updates.
1. There’s Been a Change in Ownership
Your insurance documents likely reflect the owners and their stakes at the time the policy was taken out. But if you add a new partner or someone steps down, your insurance does not automatically transfer to the new owner. The policy coverage must be updated so that the previous owner is no longer liable.
2. You’re Changing Company Structure
Insurance companies base their premiums, in part, on the base business structure. If your accountant has recommended that you move from an LLC to an S Corp or C Corp, the insurance carrier should be informed accordingly. This may affect the type of coverage that you need. And if your structure change means a change in operations, you may need a new policy altogether.
3. You’ve Taken On Risk Mitigation Strategies
Given that median costs for small business insurance policies can run from $500–$1000+, you might be able to reduce your rates by showing your carrier your own efforts to reduce risk. These efforts can include investing in cybersecurity programs that limit possible threats, training employees on workplace safety or ensuring company vehicles are regularly inspected.
4. You’ve Moved from a Traditional Office to Working from Home
General liability policies, among other things, protect business owners from accidents occurring on their physical property. If the entire company has gone remote, this might mean being able to adjust down the coverage limits because there are no physical office customers could visit or be injured in.
Home business insurance might be better suited to the needs of your business if you’re a solopreneur or if your small business only has a few remote workers. According to the Insurance Information Institute, a homeowner’s policy might only cover claims up to $2,500 when they involved a home-based business, meaning that many at-home business owners need additional coverage. Coverage can be obtained for a separate home-based policy for under $300 a year in most cases.
5. You’re Adding New Locations, Workplace Upgrades or a New Product
Any substantial change in the operation of the business should be reported to the business insurance carrier, such as if renovations are expanding the space, if new product lines are added or if new offices or warehouses are opening in the near future. These new facets of your business could open you to new risks, so your business insurance provider should know.
6. You’re Investing in New Vehicles
Especially when these vehicles will be driven by employees for work purposes, insurance companies need to know about these new assets — and the potential risks they bring. The average cost to an employer of a work vehicle auto accident is $16,500 according to OSHA, so it’s well worth ensuring proper coverage limits.
7. You've Had Consistent Growth in Revenue
Higher revenue or profits open up the doors to investing in new tools, people or offerings. However, this can also increase the liability for claims, depending on the changes made. Your insurance premiums are usually dependent on your expected revenue. If this increases from your original estimation, you could owe more money to your insurance company. Be sure to report your growth.
Impact of Failing to Notify Your Insurance Company
Letting your small business insurance carrier know that things have changed is more than a courtesy. If you continue with business as usual and fail to let the insurance carrier know about updates, you could face consequences such as:
A claim being denied
Tax penalties, such as if you start to make or sell your own products and don’t file proper forms or payments
Renewal denial or policy cancellation based on inaccurate information, whether or not this was an intentional or unintentional misrepresentation.
Don’t let your coverage lapse, your policy get canceled or end up on the hook for a business disaster because an insurance policy wasn’t updated. Focus on growth and success by keeping risks minimized with a regularly-revisited business insurance policy.
Laura Briggs is an author, TEDx speaker and freelance writer. Her first book won the "Best in Business" prize at the 2019 Author Elite Awards.