The Six Most Common Business Insurance Claims (And How to Avoid Them)

Your small business is growing and thriving. So the last thing you want to think about is all the things that could go wrong.

Unfortunately, no business is immune to risk or loss.

According to one study, four out of 10 businesses will likely experience a property or general liability claim in the next 10 years.

Having the right insurance can help protect your business against common risks. If your business experiences a loss as a result of damage, crime, or liability, you can file a business insurance claim to help cover the financial loss, up to your policy limits.

Let’s walk you through some of the most common commercial insurance claims and how to avoid them.

What Is a Business Insurance Claim?

If your business has an insurance policy and suffers loss or damage, you will want to try and recoup your financial loss as quickly as possible. A business insurance claim is a formal notification you file with your insurance provider to alert them of the incident and request compensation.

Once your insurance claim is received, your insurance provider, or a company working on their behalf, will investigate your claim. If your insurance policy covers the loss and your claim is approved, your insurance provider will issue a payment.

Depending on the type of claim, a payment may go directly to you or be sent to a third party affected by the loss. Taking swift action will help you get the compensation you need to get your business back on track.

The Six Most Common Business Insurance Claims

The more you know about different types of claims, the better prepared your small business will be if one of these unfortunate events occurs. Here are some of the most common:

1. Burglary and theft.

Burglary and theft are on the rise, especially in the retail industry. A recent survey of small business owners found that a majority (54%) experienced an increase in shoplifting in 2021.

Burglary and theft may be committed by dishonest employees, outsiders, customers, or even organized crime professionals hoping to resell your inventory.

Every business has something to steal — cash, supplies, customer data — so it’s no surprise that theft is the most common business insurance claim. In terms of cost, burglary and theft ranked lowest of the top-10 most costly claims, averaging $8,000 per claim.

You may be wondering if there’s anything you can do to protect your assets and minimize loss. Fortunately, there are many preventive steps you can take. For example, install an alarm system, set up security cameras, perform background checks on employees, and ensure you have the right business insurance to cover your loss if you should fall victim to a theft crime.

2. Wind, water, fire, and freezing damage.

As a business owner, you should always prepare for Mother Nature. Heavy rains, wind storms, other weather events, and fire can cause damage to your office space or building. Here are some of the most common threats: :

Wind storms: High winds can bring down branches or trees, causing damage to roofs, windows, and siding. When you add rain and hail to the mix, your business could get a one-two punch of exterior damage and flooding. Wind and hail damage can set you back financially, with costs averaging $26,000 per claim.

What you can do: If a wind storm is in the forecast, ‘batten down the hatches’ by securing outdoor property so it won’t get blown around.

Water and freezing damage: Water damage is most common along the coast or in low-lying areas prone to flooding, but your business also may experience flooding from issues like a burst frozen pipe. The average claim for water and freezing damage is $17,000.

What you can do: If you’re located in a cold climate, your exposed pipes should be insulated so they won’t freeze overnight.

Fire damage: Fires are unpredictable. All it takes is an improperly discarded cigarette or an electrical system malfunction to ignite a massive problem for your small business. Fire claims are ranked in the top-five of both the most common and costly claims. The average cost for a fire claim is $35,000.

What you can do: Ensure that your smoke detectors are functioning, and keep fire extinguishers on every floor of your business.

3. Customer injuries.

Your business can be held liable if a customer slips and falls on your property. If they sue you, you could be on the hook for their medical expenses and legal fees. The right general liability insurance typically helps cover those costs, which are on average $30,000.

You never know when a customer may sustain an injury, but businesses can help prevent many accidents by practicing good housekeeping and proper maintenance.

4. Product liability.

Does your business manufacture or sell a product? You may be vulnerable to product liability claims. These claims occur when a customer suffers an injury or illness related to your product.

For example, if your company makes custom porch swings and a faulty bracket causes a customer to fall off the swing and hit his head, you can be held liable for any medical expenses and legal fees if he sues you. Your small business may not have the funds to cover those costs.

The average cost of a product liability claim is $35,000, which is enough to put some small companies out of business. If you have the right insurance, it will typically help cover your losses

Business owners at risk for product liability can take these preventive measures to avoid costly claims and consider purchasing product liability insurance.

5. Property damage.

Property damage claims involve physical injury to tangible property owned by the person making a claim.

Let’s say you’re meeting with a client in your office, and you spill your mocha skim latte on her laptop. Even though it was an accident, you would likely be responsible for covering the cost of replacing the laptop.

Property damage claims for small businesses can be significant. The average claim is a hefty $30,000. The last thing you want is to damage a client’s property, but unfortunately, mishaps sometimes occur.

With liability insurance, you’re generally protected against any unintentional property damages you might cause to a client or customer.

6. Reputational harm.

The phrase “no harm done” doesn’t always apply in business. Reputational harm is damage that can be done to a company by a disgruntled employee, an internal scandal, or a mishap with a recalled product.

Reputational harm claims are among the most costly claims, averaging $50,000. If the claim involves a lawsuit, it could cost as much as $75,000 to defend and settle the case.

Reputational harm can stick with you for years, and it can have a negative impact on your business. To avoid such claims, refrain from criticizing competitors, and focus your company culture on ethics, fairness, quality, and safety.

Coverage Is Key.

Hopefully, your business will never have to file a commercial insurance claim to cover a significant loss. But if a loss occurs, insurance coverage will often help you manage the risks and prevent as much loss as possible.

At Simply Business, we’re here to help you find the right insurance for your small business. If you don’t know what coverage you should have, one of our licensed insurance agents can help make the process easier. Call us at 844-654-7272. We’ll help you stay one step ahead of a disaster.