Author: Jen Tadin


Small business owners are inherent risk takers. So if we consider operating a business without adequate insurance coverage as a significant risk, perhaps it's not surprising that small business owners are less likely to carry business insurance than their larger business owner counterparts, according to a Gallagher-commissioned survey of 1,000 US business owners.

But the biggest takeaway of the survey is one of opportunity: 82% of business owners with 100 or fewer employees said insurance coverage for their business was extremely or very important. Furthermore, a vast majority of small business owners said they likely would seek additional insurance policies over the next year. The demand is there. It's up to the insurance industry to better educate small business owners about the role insurance plays in the long-term sustainability of their business.

Insurance types business owners want: Business Owners' (41%). Life (37%) Employment Practices Liability (32%), Worker's Comp (32%)

The small business owner mindset

Owners of small businesses, defined in the survey as up to 100 employees, were the only group to report that personal matters, albeit slightly, were more likely to keep them up at night than business matters. But the roughly equal divide between personal and business worries embodies the small business owner mindset: Their business life and personal life are largely intertwined. Their business lives don't start and stop at certain times of the day. Their business's success is directly correlated to their personal livelihood.

So, what motivates small business owners to manage their risks? According to the survey, the top three reasons they're most likely to change their business insurance coverage are the size of their business, their personal financial situation and the company's financial stability. Small businesses are sensitive to changes in cash flow, economic pressures to their business and unexpected changes in revenue streams. Like larger business owners, a vast majority of small business owners said they have stopped paying themselves at least once to keep their businesses operational. When small business owners are faced with a decision that could close their doors, they may decide insurance isn't a top priority.

According to the survey, small business owners also were the least likely to review their business insurance coverage at least once a quarter or more to ensure it's still meeting the needs of their business. This reflects a typical conception about small business owners — they are time strapped. But it's also important to consider, on the whole, how closely they mirror owners of larger businesses: 97% of small business owners surveyed said they review insurance coverage at least once a year. When we consider one of the strengths of small businesses is the ability to innovate and evolve with the changing needs of consumers, it's no wonder with this innovation comes a need for regular reviews of insurance policies.

How small business owners manage their risks

Small business owners surveyed were less likely to carry a comprehensive portfolio of insurance policies than larger business owners, particularly Life insurance, Workers' Compensation insurance, Employment Practices Liability insurance (EPLI) , Cyber coverage, Product Liability coverage and Directors' and Officers' Liability insurance. Most glaringly, 10% of small businesses don't carry any sort of insurance protection. Business Owners' policies and Life insurance were small business owners' most-desired coverages.

Small businesses are frequent targets of cyberattacks, and many of them don't have resources for robust cybersecurity measures. Notably, more small business owners said they were extremely or very concerned about cyberattacks (60%) affecting their business over the next 12 months than healthcare costs (58%) or climate change and natural disasters (52%), which indicates small business owners take cyber risks seriously. However, only 22% of them currently have Cyber insurance, and only 28% expressed interest in expanding or obtaining new Cyber coverage.

Business owners' major concerns: cyberattacks (60%) healthcare costs (58%), jobless claims (53%), climate change and natural disasters

When asked to assess the effectiveness of their risk management strategy, 93% of small business owners said theirs were at least somewhat effective. But the results showed a clear confidence gap: Only 63% of small business owners deemed their risk management strategy extremely or very effective, in contrast to at least 84% of larger business owners. And despite being the least likely of their counterparts to feel as if they have an effective risk management strategy, small business owners are the least concerned about the possibility of business insurance not covering a specific event or loss.

These survey results highlight the insurance industry's opportunity to improve educational resources to inform and advise entrepreneurs about risk management techniques. The ability to properly prepare for the uncertainty of running a business is directly correlated with the longevity of small businesses.

Ultimately, the encouraging result of our survey is that 82% of small business owners are open to adding to their risk management portfolios. There is a wealth of opportunity to further protect the livelihoods of these entrepreneurs and staples of our local communities and economies.

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