Take a look into the results of an AdvisorSmith survey on small business claims.
The small business environment has been through a tumultuous year, with the pandemic impacting businesses due to shutdowns and consumers staying home, in addition to the negative impacts of natural disasters like wildfires and hurricanes. Many businesses experienced never-before-seen events in 2020, and we wanted to take the pulse of these businesses to see what risks they faced and how they plan on preparing for future risks.
3 in 4 small business experienced an insurable event in 2020
AdvisorSmith conducted a survey of 1,000 small business owners to understand what types of risks they faced in the last year. According to our survey, three in four (76.2%) respondents reported experiencing an event in 2020 that could have led to an insurance claim, while one in four (23.8%) respondents did not experience any insurable event.
The following is a breakdown of the events these respondents experienced in 2020 (some respondents experienced more than one insurable event):
- 32.0%: Burglary, theft, fraud, or other crime. Commercial crime insurance can protect against financial losses resulting from crime such as theft, burglary, robbery, forgery, and fraud.
- 31.3%: Employee injury. Workers’ compensation insurance can provide financial benefits to employees who suffer work-related illnesses or injuries.
- 28.6%: Client complaint or contract dispute. Professional liability insurance protects individuals and companies from the costs of lawsuits and damages related to their professional advice and services.
- 27.9%: Cyberattack, data breach, or hack. Cyber liability insurance covers your business against losses caused by cyberattacks such as hacks, data breaches, denial of service attacks, and viruses.
- 27.2%: Employee complaints of discrimination or harassment. Employment practices liability insurance protects against lawsuits by current, past, or prospective employees claiming wrongful treatment such as discrimination, harassment, or other employment-related issues.
- 26.5%: Property damage from fire or weather events. Commercial property insurance helps protect the value of the physical assets your business owns from hazards including fire, windstorm, lightning, and more.
- 25.9%: Accident with a company car. Commercial auto insurance provides protection from liability and property damage involving company vehicles.
- 24.5%: Injury or damage caused by a product you sold. Product liability insurance protects against liability resulting from bodily injury or property damage caused by your business’s products or sold goods.
- 23.1%: Customer injury. General liability insurance protects against third-party claims of bodily injury and property damage.
2 in 3 small businesses carry business insurance
While our survey showed that three in four (76.2%) small businesses experienced an insurable event in 2020, only two in three (66.0%) carried any form of business insurance. What’s even more interesting is the breakdown by demographic, which showed that older business owners (aged 45+) were far less likely to carry business insurance than their younger counterparts.
Older business owners 2x less likely to carry business insurance
The following is a breakdown by age of survey respondents that reported carrying any kind of business insurance, showing older business owners (aged 45+) carrying business insurance at a much lower rate than younger business owners (ages 18-44):
|Age||Have business insurance||Do not have business insurance|
|18 - 24||66.7%||33.3%|
|25 - 34||71.4%||28.6%|
|35 - 44||76.8%||23.2%|
|45 - 54||38.9%||61.1%|
We spoke with Dr. Robert Hartwig, clinical associate professor of finance and co-director of the Risk and Uncertainty Management Center at the University of South Carolina’s Darla Moore School of Business, who weighed in on why younger business owners may be more likely to carry business insurance.
“One likely factor is that young business owners may be borrowing to start up their business. If so, their mortgage lender will require them to carry commercial property insurance and perhaps other types of insurance as well,” said Dr. Hartwig. “Older business owners may no longer have outstanding mortgage debt.”
Dr. Hartwig also explained that another contributing factor may relate to awareness and education with respect to certain risks. “Young business owners—who may have invested the majority (or entirety) of their assets into a new business—understand that a failure to protect their investment with insurance could easily lead to financial ruin.”
1 in 2 small businesses filed a claim in 2020
Our survey showed that roughly one in two small businesses (55.8%) reported filing a claim in 2020, even though three in four (76.2%) businesses reported experiencing an insurable event. While there are many reasons for not filing a claim, from avoiding paperwork and hassle to not having enough coverage, what’s interesting to see in the survey data is that women business owners were much less likely to file a claim than their male counterparts.
Female business owners 1.6x less likely to file a claim
While our survey showed that both men and women business owners carried insurance at roughly the same rates (67.8% for men, 63.2% for women), women were much less likely to actually file a claim.
- 40.4% of female respondents reported filing a claim in 2020
- 65.6% of male respondents reported filing a claim in 2020
“Insurance pricing is based, fundamentally, on the frequency and severity of claims made by policyholders,” explained Dr. Hartwig. “Women, in general, tend to exhibit more caution than men—which in turn can lead to fewer claims. For example, women are less likely to file automobile claims.”
3 in 4 small businesses plan on purchasing or increasing coverage in 2021
Given the challenging economic climate small business owners faced in 2020, it’s no surprise that our survey showed that nearly 3 in 4 (74.1%) small business owners planned on purchasing business insurance or increasing their business insurance coverage in 2021.
“The past year has been a nonstop advertisement demonstrating the need for insurance,” said Dr. Hartwig. “From COVID to near-record catastrophe losses to cyberattacks, the need for insurance has seldom been so apparent.”
AdvisorSmith surveyed 1,000 self-identified small business owners in the U.S., conducted via the Pollfish survey platform in April 2021. Fifty-nine percent of respondents were male, and 41% of respondents were female.