What's key for SMB insurance coverage?

Business owners grappling with a slew of complex challenges

What's key for SMB insurance coverage?


By Gia Snape

Small and medium-sized business (SMB) owners, especially those in the restaurant industry, face numerous challenges, including staffing, inventory management, business costs, and insurance complexities.

More than ever, they face mounting risks to their enterprises, such as severe weather events and inflation.

Product diversification, transparent pricing, and educating customers about risk mitigation strategies are essential for meeting their needs in the face of increasing risks, said Chris Rhodes (pictured), chief insurance officer at NEXT Insurance.

His comments come after NEXT Insurance released a new survey showing nearly half of SMB restaurant owners had experienced weather-related damages since November 2023.

More than a third (34%) of restaurant owners also said they felt unprepared for such risks and are unsure about their insurance coverage.

“Small business owners have a lot on their plate,” said Chris Rhodes (pictured), chief insurance officer at NEXT Insurance. “They have to think about staffing, inventory, the cost of their product and the competitiveness of their product offering, and insurance is another thing they have to deal with.

“I see product diversification as a key solution [for SMBs], and there are quite a few elements within product diversification that can help businesses get coverage, such as more diverse pricing with transparent information to customers about what’s impacting their price and advice on steps they can take to mitigate risk and reduce their price over time.”

Severe weather risks faced by restaurant SMBs

In the notoriously competitive restaurant industry, roughly 60% of new restaurants fail within the first year and nearly 80% within five years, according to data cited by NEXT Insurance.

Therefore, protection from risks such as weather-related damage and business interruption can be a make-or-break factor for entrepreneurs.

NEXT Insurance’s survey looked to determine SMB restaurant owners’ (with 10 employees or less) pain points regarding weather-related damages and insurance coverage. Nearly a quarter (24%) of those surveyed don’t know if their insurance policy even covers extreme weather damage, while 28% are uninsured entirely.

Rhodes said the survey can help shed light for brokers and carriers that serve this segment.

“The consumer research is to ensure that we understand the perils that different businesses are exposed to and what concerns the business owner has around insurance coverage. We also need to ensure that we’re communicating in the right way to be able to provide them with what they need,” Rhodes said.

What’s impacting insurance affordability for SMBs?

With extreme weather events becoming increasingly frequent, especially with the ongoing El Niño season and freezing temperatures nationwide, conditions often pose a significant risk of damage to a business’s roof, interior and plumbing, which are time-consuming and costly to fix and can even lead to long-term closures. 

However, factors like increasing weather-related losses and insurers pulling out of high-risk areas have limited the availability and affordability of insurance coverage for SMBs.

“One thing that has impacted the insurance market over the past five to 10 years has been the sheer magnitude of insurance losses,” Rhodes said.

“In 2023, weather-related damages caused an estimated $93 billion worth of property loss, and that loss isn’t spread evenly throughout the United States. It’s concentrated in specific geographic areas, and that has made the insurance industry much more cautious about providing capacity in select areas.”

Rhodes said one way the insurance industry can adapt is to offer SMB owners varying types of coverage, “either by adjusting deductibles or limits in higher-frequency areas with weather where there’s more flooding, hail, or winter freezing activity.”

“Often, a solution is higher deductibles, which can keep the policy’s price lower over the long term,” he said. “The business will share a little bit more in the short-term loss with the insurance company, but at a level that’s acceptable to the business.”

Weather risk mitigation for restaurant SMBs

Amid the challenges, small business owners should focus on physical preparation, informed decision-making about insurance coverage, and shopping around for the best coverage at an affordable price, according to the NEXT Insurance leader.

He noted that one common misconception among these insureds is that a single policy covers all risks. However, brokers should emphasize that different types of insurance, such as workers’ compensation, liability, property, and business interruption, are necessary for comprehensive coverage.

Rhodes also shared tips for brokers to share with clients who are SMB owners and face significant weather-related risks.

“Step number one would be to take those physical measures of preparation to protect your property against those natural perils based on the geography of your business,” he said.

“So, if you’re located in California, make sure you understand the risk of wildfire to your specific property. Make sure you understand the risk of flooding to your property based on the location, the local location, and your exposure to some of those winter rains that are quite frequent in the area.

“Step two is to inform yourself about the insurance coverage that you’ll need, and there are many different tools and resources available to help you do this.

“Once you have those two foundational elements understood, it’s now time to shop for insurance.”

What are some other challenges that SMB restaurant owners face today? Please share your thoughts in the comments.

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