Last year’s record losses from natural disasters should encourage insurance agents to talk with small business clients about worst-case scenarios.
With memories of last year’s three major hurricanes and ravaging wildfires still fresh, insurance agents should be prepared to discuss disaster preparedness with their small business clients — especially as hurricane season approaches. For small businesses, the right coverage could determine the future of their company. After all, nearly 40% of small businesses never recover after suffering damage from extreme weather events or other natural disasters, according to the Federal Emergency Management Agency (FEMA).
Insurance agents play a vital role in helping clients prepare for the worst. With the right guidance — and the right policy — small business owners can be up and running sooner rather than later. Curious how you can talk to your clients about getting the appropriate coverage? These five steps can help lay the groundwork for the right action plan in the wake of extreme weather.
1. Know the Risks
Start by evaluating what type of disaster could potentially damage the business owner’s property and operations. A business owner in Florida, for example, may be located in the path of a hurricane. On the other hand, a Midwestern company may have to contend with tornados. Knowing those hazards will inform which insurance coverage a small business owner needs.
It’s also a good idea to encourage business owners to check their facilities for any wear-and-tear such as leaky roofs or loose shingles. A well-maintained building has a better chance of withstanding storms than one in need of extensive repairs.
2. Develop a Plan
Small business owners should have a plan in place to communicate with employees, vendors, customers, and partners regarding operations during an extreme weather event. Consider discussing with clients the possibility of moving operations to a different location during or after a disaster — at least until repairs have been taken care of. Additionally, suggest practical things that your clients can do to get ready for power outages or secondary damages, such as purchasing an emergency generator or running fire drills with employees.
3. Preserve Important Data
Every business maintains an enormous amount of proprietary data, from business licenses and vendor records to insurance policies. To ensure those materials survive natural disasters, agents should recommend those papers be placed offsite in a safe facility far from the disaster zone, but close enough to be accessed quickly. Since many files are stored digitally, small businesses should also consider backing up their data in the cloud.
4. Review Insurance Coverage
As hurricane season approaches, conduct regular reviews of small business clients’ insurance policies to help them understand what would be covered in the wake of an extreme weather event. If a client owns the building where their business operates, for example, property insurance covers any damage to the structure. Business owners who lease property, however, are responsible for insuring the contents of their space.
The amount business owners receive to rebuild or repair depends upon how their policy is written. Policies that include a replacement cost provision allow the policyholder to rebuild based on current construction prices. Alternatively, the policy may specify actual cash value, which subtracts depreciation from the cost of reconstruction. Be prepared to help small business clients decide which options provide adequate funds for their unique needs.
5. Buy Business Interruption Insurance
For businesses unable to operate for an extended period of time after a disaster, business interruption insurance pays for operating expenses, like payroll and utilities. This type of policy provides funds in lieu of what would otherwise be earned. As with property insurance, you’ll have to help clients determine a coverage level that is sufficient.
Also, a business interruption policy may have a waiting period before the funds are distributed, so small business owners will need to have enough money on hand to pay for those expenses before the policy kicks in.
As 2017 showed, natural disasters can hit anytime and anywhere, causing massive damage to homes and businesses. As an agent, you’ll need to work with small business clients to ensure they have the insurance coverage in place to protect themselves and their companies during and after extreme weather.