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Four Hair-Raising Facts about Commercial Insurance Losses

Posted by Shannon Delaune
Dec 23, 2014 11:34:00 AM

If you are a moviegoer, chances are you have seen a blockbuster disaster film. For decades, the popularity of the disaster movie genre has enjoyed successful box office draw, with moviegoers sitting at the edge of their seats in anticipation. These films typically feature large casts with popular actors and have multiple story lines. There is a broad range of disasters featured--floods, fire, plane crashes, and earthquakes.

We worry if the main characters will survive and watch in awe at the level of destruction shown on the screen. You watch the action and are left wondering about the likelihood of the  “what if” scenarios just spotlighted. Sure, you'll enjoy the movie, just as long as those "what if" scenarios don’t happen “here.”


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The real-life plot thickens for business owners because, in reality, natural and man-made disasters do exist and could spell financial ruin!  Consequently, reading the following four facts about business insurance losses just might make your hair stand up on end:

Fact #1:

Nearly 70% of business financial losses arise from 10 causes.

This statistic comes from an article published in the Insurance Journal which is cited from a survey conducted by business insurer Allianz Global Corporate & Specialty. The research came from reviewing more than 11,000 major business claims from the years of 2009 and 2013. The top 10 causes of loss by total value identified in the article are listed in order: Grounding, Fire, Aviation crash, Earthquake, Storm, Bodily Injury (including fatalities), Flood, Professional indemnity, Product defects, and Machine breakdown.

 Other hair-raising fact: According to the Information Insurance Institute, “Most business owners are complacent about natural disasters until one affects their business.”

Fact #2:

In 2011, nonresidential building fire loss, involving equipment, reached a startling $483,400,000. 

In 2011, the United States Fire Administration's (USFA) national estimates summarize the three leading causes of nonresidential building fire loss (in dollars) to be as follows:

  1. Other Equipment $483,400,000.

  2. Electrical Malfunction $302,600,000.

  3. Other Unintentional, Careless: $277,500,000.

USFA also cites Texas, California, and Pennsylvania as leading the nation in number of fire deaths.

The Small Business Administration (SBA) forewarns business owners to protect their assets—the property, equipment, furniture, fixtures—whether you own the commercial real estate or run a home-based business.  Heed SBA's advice and contact an insurance professional, who can assist with determining the replacement value versus actual cash value.

Other hair-raising fact: The USFA statistics cite people aged 30–34 years old have the highest fire injury rate (71.4%).

Fact #3:

Flooding causes an average of $50 billion in economic losses every year.

Addressing the topic of flooding, the Insurance Information Institute states the above fact and goes on to reference flooding as the most common and costly natural disaster in the United States. In fact, the majority of natural disasters declared by the President of the U.S. involve flooding.

Two examples of widespread flooding which affected several parts of the U.S. are associated with Super Storm Sandy (2012) and Hurricane Katrina (2005). Super Storm Sandy affected 24 states, including the entire eastern seaboard from Maine to Florida and west from the Appalachian Mountains to Michigan to Wisconsin. The majority of destruction from Hurricane Katrina occurred in southeastern Louisiana and affected the Gulf Coast from central Florida to Texas. We saw the non-stop news coverage which captured the disasters as they occurred and listened to interviews from people affected—the families, first responders, and business owners. 

 Other hair-raising fact: A standard business owners’ policy usually does not cover flood insurance.

Fact #4:

Of the $45 billion in insured losses suffered in 2013, $8 billion was attributed to man-made disasters.

This data is from the Insurance Information Institute’s account of a report from Swiss Re., and is an example of why you should consider including professional indemnity insurance coverage. Therefore, if your company’s livelihood is offering services, such as advising, making recommendations to clients, providing physical care, or representing the needs of others, you run the risk of being sued by a dissatisfied customer. Other financial risks include breach of contract, comparable to when mistakes are made that cost your client money or when business owner/officers are sued for wrongful acts of duty. It's recommended that business owners whom offer services should secure professional liability insurance coverage.

Other hair-raising fact: The SBA states many small businesses assume forming an LLC will protect  them in the event of a lawsuit; however, professional liability is limited.

As a business owner, you certainly want to avert any disaster, whether it’s natural or man-made. You already face many challenges and risks by running a business. Do not wait to go through a disastrous event and suffer financial loss before purchasing the proper kind of insurance. Arm yourself with knowledge and understand the needs of your business, check into your options, and protect your company!

After all, as the 'director' of your company, you can sleep well at night knowing you have protected your assets -- namely your employees and company, and the script calls for a 'happy ending' should disaster strike.

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