Is insurance recession-proof?
To succeed in business, you’ve got to understand and track many forces that can affect your company. One of them is changes in the economy. Consequently, you might find yourself wondering, “Is the business climate improving, or is the economy slowing down?” When the economic indicators are trending downward, you might think, “Are we in a recession?” Your thoughts might also turn to your company’s financial protection, leaving you wondering, “Is insurance recession-proof?”
This article addresses the relationship between the economy and small business insurance. It provides helpful advice and insights for business owners on ensuring they have adequate coverage, regardless of what the current business climate is. Read on for details.
Business insurance: essential in any economy
When someone asks, “Is insurance recession-proof?” what they really want to know, in many cases, is whether having coverage will shield their business from the effects of an economic downturn.
While business insurance won’t necessarily enable your company to sail through a challenging economy untouched, it can help protect it from unexpected events, which can be much more damaging when the economy tightens.
Imagine a company that isn’t adequately protected from financial risks. If an incident occurs when the economy is good, it might not bankrupt the business. Revenues are meeting expectations, and the cost to repair or replace an asset is painful but manageable. If that same type of issue occurs in a challenging economy, when revenues are down and repair/replacement costs are up, it can be a much bigger problem.
Fortunately, business insurance can help reduce the impact of unexpected events, providing stability regardless of whether the business climate is favorable or not.
Inflation and your policy limits: what you need to know
As a business owner, it’s important to review your insurance policies periodically to confirm they are still providing sufficient financial protection. If your business has changed in any significant way, you might need additional coverage. That would include actions like hiring more workers or purchasing equipment.
Another scenario where you might need to increase your coverage limits is when inflation increases significantly. Inflation impacts the cost of everything, including the cost to repair or replace damaged property, medical expenses, and the legal fees associated with liability claims. If inflation rises sharply, the amount of coverage that seemed sufficient when you purchased a business insurance policy might not be enough to cover the full cost of a loss today.
Imagine a fire damages your business location and an expensive piece of equipment is damaged or destroyed. Due to inflation, the cost to repair or replace it might have increased significantly since you set your insurance limits. If your policy doesn’t cover the full repair or replacement cost, you can be left with a substantial out-of-pocket expense. This type of insurance crisis can adversely affect your finances at any time. However, the cost can be especially difficult to manage if the unfavorable economic climate means your business is already facing reduced revenue.
Reviewing your policy limits regularly (and especially in a volatile economy) helps ensure that your coverage keeps pace with the current economic reality and the actual cost of potential losses. As a result, you avoid being underinsured when you need your coverage the most.
Keep your business moving forward in any business climate.
You can’t control fluctuations in the economy or the inflation rate. However, you can control how you respond to these forces. When the economic climate is good, you can take steps like investing in your workforce, expanding your market reach, and developing new products and services. These and other actions can help improve your company’s performance and increase its revenues.
When the economy is struggling, it’s important to consider how to prepare for a recession. A good starting point is to talk with a financial advisor. They might encourage you to build up your cash reserves, reduce your debt, and implement stricter policies around your accounts receivable to ensure consistent cash flow. They might also suggest looking for ways to reduce expenses, increase operational efficiency, and optimize your supply chain.
However, one piece of advice that applies in any economy is that you should ensure you have the small business insurance you need to protect your company from property damage, lawsuits, and other unexpected events and that your policies have limits high enough that you won’t have to use your revenues or savings to pay amounts exceeding them.
If you have questions about what types of insurance a business like yours needs, our website explains the different coverages we offer and the types of claims each policy covers. You can also talk with one of our licensed insurance experts. They’re happy to make coverage and policy limit recommendations.