Retail business owners have enough on their plates without having to go over the finer points of insurance costs. Yet, many devote an excessive amount of time to worrying about whether their coverage is adequate. Although paying too much is not wise, many fear they could be underinsured and are one unexpected incident away from closing for good.
Guidelines such as percentages of annual revenue to allocate for insurance may not be helpful if retailers are still finalizing their budgets. So how can you gain a better understanding of what your retail insurance should cost?
The Reality of Retail Insurance Pricing
Insurance pricing can feel like trying to solve a Rubik’s Cube while wearing a blindfold. There are numerous variables and few clear answers. Of course, the type of products you sell is a significant consideration. After all, a boutique clothing store will contend with different risks than a hardware store or a high-end jewelry shop. For businesses that sell products both online and at physical locations, it becomes even more complicated.
Location plays a significant role, too, although not always in the ways you might expect. While it seems reasonable that a shop in downtown Manhattan would pay more for insurance than one situated in rural Kansas, sometimes the differences can be surprising. For example, a strip mall location might seem like a safer place than a trendy downtown spot, but if it happens to be in a flood zone or has higher crime rates, your premiums could tell a different story.
The size of your business will also influence costs. A 2,500-square-foot store that has three employees will naturally pay less than a 10,000-square-foot operation with 15 staff members. However, smaller businesses sometimes end up paying proportionally more because they can’t spread certain base costs across a larger operation.
A Closer Look at the Coverage Your Business Needs
General liability insurance is essential, as it provides coverage for certain unexpected events for which your business may be held liable. These incidents include slip-and-fall accidents involving customers, injuries from products you sell, or accidental damage to someone else’s property. The price of this coverage varies depending on factors ranging from the industry in which you operate to your claims history and how good your lawyer is at reading insurance contracts.
Property insurance is necessary to protect your building (if you own it), your inventory, and your equipment. However, this can be tricky because inventory values fluctuate throughout the year, especially in seasonal sectors. For example, a Halloween costume shop needs to have coverage that reflects October’s overflowing inventory levels, not January’s bare shelves. Most retailers will pay between $500 and $3,000 annually for property coverage, but businesses in disaster-prone areas or those with high-value inventory may pay considerably more.
Workers’ compensation is required in most states for all stores that have employees, and the costs vary significantly by industry. A bookstore will typically pay much less than a sporting goods store with employees who handle heavy equipment, for example.
Business interruption insurance is often overlooked, but it can be a real lifesaver. When a pipe bursts and floods your store, you won’t just have to contend with cleanup costs; you’ll also lose numerous sales every day your doors are closed. Many business owners find that this coverage is relatively inexpensive for the peace of mind it provides.
Unexpected Factors That Can Influence Your Premiums
Your claims history can follow you around indefinitely, and even just a few claims are enough to send your premiums climbing.
In addition, credit scores matter more than most business owners realize. Insurers have found correlations between a business’s credit score and claim frequency, so they use this information to inform their pricing. While this may not always be fair, it is legal in most states.
The age and condition of your building can also significantly impact insurance costs. That 1920s storefront with original hardwood floors may have lots of character, but it also has outdated electrical systems and old plumbing that makes insurance companies nervous. In contrast, newer buildings that boast modern safety features may qualify for discounts.
Your business practices also make a difference. Do you have security cameras, alarm systems, and a fire suppression system that goes beyond basic smoke detectors? These investments often pay for themselves in the form of insurance discounts, but agents may not always volunteer this information to retailers upfront.
Industry-Specific Considerations
Restaurants and food retailers have some specific considerations that other retailers do not have to worry about; spoilage coverage and higher liability risks are just part of the story. Meanwhile, retailers in the technology sector grapple with concerns over theft and the rapid depreciation of inventory, while clothing stores experience seasonal fluctuations. In other words, each industry has its own set of characteristics that influence insurance pricing.
Some businesses may need specialized types of coverage that general agents may not even be aware of. For example, art galleries require specialized fine arts coverage, while pharmacies are subject to regulatory compliance issues that impact their insurance needs.
Rely On the Experienced Team at John M. Glover Insurance Agency
Don’t leave your business exposed to coverage gaps or overpay for policies you don’t need. Contact the experienced team at John M. Glover Insurance Agency today for a personalized quote and find out more about how proper insurance planning can give you peace of mind and potentially save your business money.
