New small business owners are more likely to have proper business insurance than those that have been operating longer. Even so, a majority of small businesses remain underinsured.
That’s according to a new survey by ERGO NEXT which found that 82% of new businesses with less than one year in operation have insurance while only 6
7% of businesses with one to five years in operation have insurance. Perhaps a more important statisti
c for agents and brokers to consider that 73% of small businesses could be underinsured for the actuals risks they face today.
The study also found that a quarter of the small businesses surveyed didn’t have insurance at all with about 14% reporting that they aren’t sure what their policy covers in the first place.
What is “underinsured?” According to ERGO NEXT, a business is considered underinsured when its coverage doesn’t protect against the most significant risks it faces.
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The economy plays a critical role in selection, the survey found. A majority (84%) of survey respondents said they have been forced to prioritize other expenses
over insurance during the past six months with economic uncertainty looming and the pressures that come with keeping their businesses profitable.
When coverage isn’t required and resources are limited, many entrepreneurs feel forced to cut back on insuring important risks. There were three factors driving underinsurance among small businesses, the ERGO NEXT r
eport said: compliance requirements, cost pressures, and uncertainty about coverage needs.
“Entrepreneurs unsure of what insurance they truly need may default to buying the minimums required by law,” the report said. “More than a third of small business owners (37%) say maintaining steady cash flow is a top source of stress.”
Nearly half (46%) of survey respondents revealed that the cost to insure all their risks is why they may not have enough coverage. Nearly a third (32%) said th
ey may have gaps in coverage in areas where the additional coverage isn’t legally required, while 32% said insurance coverage is too confusing to understand their coverage gaps enough to fix them.
“Businesses evolve constantly, but insurance coverage doesn’t automatically keep pace,” said Phil Natoli, vice president and chief actuary at ERGO NEXT. “As
companies add employees, adopt new technologies or expand into new markets, their risk exposure changes. He advises agents to make sure to review coverages on a regular basis.