Are agents to blame for small business interruption gaps?

As tornadoes rip across the country, clients' lack of understanding of their cover is exposed

Are agents to blame for small business interruption gaps?

Catastrophe & Flood

By Will Koblensky

Harsh storms are coalescing in the central area of the US and heading eastbound, kicking off an especially early squall season this year.

Tornadoes of historically strong proportions rocked Chicago, killing and injuring some in rural Illinois while supercell twisters and thunderstorms ripped through Arkansas, Iowa, Indiana, Ohio, Kentucky and Tennessee.

So far there have been a relatively small number of claims made to Nationwide Mutual Insurance’s Mark Anderson, associate vice president of commercial lines.

However, most of those claims have been through their business owner’s protection policy, Anderson said.

Among small business owners in America, 71% don’t have business interruption insurance and 25% of businesses will close permanently following a severe storm.

Anderson said policyholders aren’t well-enough informed and that is, at times, related to agents not informing their clients of what coverage they need.

“In small, rural areas with a limited amount of independent agents there’s often a very close working relationship between the agents and the policyholder as to what their needs are, which I don’t see when there’s a greater population,” Anderson said.

For example, one factor policyholders often don’t realize is that business interruption coverage could be denied if there was no physical damage to an owner’s property.

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“Business interruption does not apply when there is no direct physical loss to the coverage structure.  Often times, there may be severe damage to a surrounding area but the policyholder may have been fortunate enough not to sustain any damage,” Anderson said.

“However, their business may not be in operation because of power outage. Normally, that loss sustained for being out of business would not be covered, because there was no direct physical loss to their covered business.”

He explained that a utility inclusion is needed to cover power outages suspending business operations and though Nationwide’s business owner’s protection policy covers interruption in some cases, Anderson stressed more communication is necessary.

Then there are the unique commercial qualities to property and liability.

“Business owners need to make sure their property is insured to value, so they don’t sustain a diminished coverage amount due to a lack of insurance value,” Anderson said.

“You need to make sure that they’re carrying the amount of insurance required by the policy. Sometimes it’s 80% or 90% coinsured, so if their business is valued at $100,000 they need to make sure they’re carrying $80,000 to $90,000 in coverage.” 

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