April 15, 2015

What types of insurance claims are most commonly incurred by small businesses? What kinds of claims are the most costly? A study performed by The Hartford, a financial services company, addressed those questions. The insurer analyzed claims data from over one million policies purchased by small business owners. The data covered a five-year period (2010 through 2014) and applied to liability, auto and property claims.


The results of The Hartford's study are summarized below.

Forty Percent Chance of a Claim

When small business owners purchase an insurance policy most don't think they will sustain any losses. They view insurance as protection against extraordinary events. Yet, losses may occur more frequently than many business owners expect. According to The Hartford, 40% of small businesses will incur a property or liability loss within the next ten years.

Most Common Types of Claims

The Hartford's analysis provides some insight on the types of claims small businesses can expect. The insurer cited the following as the ten most common types of claims incurred by small businesses. The percentage shown next to each type of claim is the percentage of total claims.

1. Burglary and Theft (20%) The perpetrators of these crimes may be dishonest employees or outsiders.
2. Water and Freezing Damage (15%) These include claims involving roof damage from snow or ice and damage caused by frozen pipes
3. Wind and Hail Damage (15%)

1. Fire Damage(10%) Fire is one of the most common causes of property damage, but many policyholders underestimate its destructive power.
2. Customer Slips and Falls (10%) Almost any business can incur a slip-and-fall claim. However, your company may be more vulnerable to such claims if customers or members of the public regularly visit your premises or work site.
3. Customer Injury and Damage (Less than 5%) Customers may sustain bodily injury or property damage in accidents that do not involve slips and falls. For instance, a customer is injured in your office when a heavy floor lamp falls over and hits him in the head. 
4. Product Liability (Less than 5%) Your vulnerability to a product liability claim depends on a variety of factors including the nature of your product and warranties you make when you sell the product.
5. Struck by an Object (Less than 5%)
6. Reputational Harm (Less than 5%) These are third-party claims against small businesses for acts like libel and slander. Plaintiffs allege that their reputation was damaged by such acts.
7. Vehicle Accident (Less than 5%) A vehicle safety program can help prevent auto accident claims.

Most Costly Claims

Clearly, some types of claims occur more frequently than others. Yet, claim frequency is only one aspect of claims that insurers consider. They are also concerned about claim severity (the size of  claims). The Hartford calculated the average cost of claims for each of the ten categories cited above. Here are the ten categories in order of average cost, from highest to lowest.

1. Reputational Harm ($50,000)
2. Vehicle Accident ($45,000)
3. Fire ($35,000)
4. Product Liability ($35,000)
5. Customer Injury or Damage ($30,000)
6. Wind and Hail Damage ($26,000)
7. Customer Slip and Fall ($20,000)
8. Struck by an Object ($10,000)
9. Water and Freezing Damage ($17,000)
10. Burglary and Theft ($8,000)

Lessons for Small Businesses

The claims analysis conducted by The Hartford is based on the insurer's own loss data. An analysis conducted by another insurer might yield different results. Still, The Hartford's study provides useful information for small business owners. It can help small firms decide where to concentrate their efforts to control losses.