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  • Writer's picturejoseph retcho

How to Defend Against Inflation for Your Small Business


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Inflation pressures can have an impact on businesses of all sizes, but they can have a particularly big impact on small business owners who may lack the tools to effectively hedge against cost increases.


Labor and material costs are increasing, and supply chain problems brought on by pandemics and weather conditions make operations even more challenging for businesses. It can seem like the ideal storm to many people.


Making sure you have the appropriate level of coverage is a crucial component of your strategy to safeguard your small business from the consequences of inflation, even though some of these reasons are also driving up the price of business insurance. You must modify your coverage to ensure that everything covered by your policy is fully protected when the cost to replace lost items grows. It's crucial to first comprehend how inflation can impact your small organization.


What Impact Does Inflation Have on Small Businesses?

Today's inflation is being influenced by a number of phenomena, all of which could have an impact on small businesses that encounter an incident that results in an insurance claim. These may consist of:

  • Construction costs. The price of building new structures is increasing as a result of increased labor expenses and problems with the supply chain for materials. For instance, it cost roughly 28% more to construct a new warehouse in early 2022 than it did to construct a similar warehouse in the previous year.

  • Worldwide demand. Building materials are increasingly in demand. For instance, between January 2021 and January 2022, the price of structural metal items increased by 43%.

  • Weather Extreme. Weather disasters can result in local inflationary pressures, which are exacerbated by the fact that extreme weather occurrences are occurring more frequently. According to the National Centers for Environmental Information, the yearly average for major catastrophic weather events increased to 17.8 over the past five years. When compared to 1980, there were just 7.7 big destructive weather events annually on average. Individual storms are increasingly costing more than $1 billion in damages.

When their business insurance coverage was based on out-of-date limits, many business owners found it to be practically impossible to rebuild their commercial facilities as materials and labor costs grow. Despite these dangers, a recent Verisk study found that 43% of small enterprises with fewer than 100 employees are underinsured. 


As a result, many small business owners struggle to recover from a significant loss. At least 25% of businesses never reopen, frequently because they had inadequate business insurance and couldn't afford the substantial and frequently unforeseen out-of-pocket expenses associated with dealing with a major loss event.


What Is Covered by Small Business Insurance?

You must safeguard a range of commercial property assets as a small business owner, such as buildings, vehicles, inventory, and equipment, as well as the revenue lost due to any downtime following an incident.


Therefore, purchasing a Business Owner's Policy is crucial (BOP). A BOP covers assets including buildings, business personal property, lost revenue, and liability to assist in defraying the expense of any third-party claims made against your company. Commercial auto policies allow for the independent coverage of vehicles owned by the company.


When working with your agent to determine your policy limits, inflation risk should be taken into account in addition to the rising cost of materials needed to restore a structure after suffering major fire damage or another insured loss event. Forklifts, specialized manufacturing equipment, and other sorts of property all have equipment replacement costs that are impacted by inflation. Some of these items' coverage under your policy may be subject to particular caps or may be covered by your building or company personal property limit.


Take into account all categories of business personal property:

  • Recently acquired stock, assets, or machinery.

  • Equipment of all sizes.

  • IT and computer equipment.

  • Equipment for handling materials.

  • Molds, dies, and tooling.

  • Items in your care, custody, or control that belong to someone else.

  • Fixtures, changes, and improvements such as additions and adjustments.

Why are the costs for my business insurance rising?

The BOP(Business Owner Policy) that you acquire for your company has limits on the buildings and business personal property that you want to be protected, just like most property-related business insurance plans. In order to assist small firms in keeping up with inflation, insurance companies often raise those limits automatically once a year. One of the causes of the tendency of premium increases during periods of inflation is this.


Making wise business insurance choices might help you protect your commercial property from inflation.

A soft or hard landing in the case of a loss can depend entirely on the amount of coverage you have, therefore it's a good idea to examine your limits with your agent as soon as possible. Inquire with your agent about how choosing "actual cash value" coverage, which typically takes into account how the value of particular property depreciates, as opposed to replacement cost coverage, which is based on the current market value of buildings and materials, may affect your specific experience with coverage and which kind of policy best suits your needs.


When prices are erratic, BOP add-ons that offer a safety net on restrictions that exceed the stated values of the property in your policy could be more alluring. For instance:

  • In the event of a covered loss, Replacement Cost Extension raises the building valuation to a maximum of 125% of the scheduled building limit.

  • As a safeguard against inflationary pressures, Inflation Guard offers an option that increases limitations for buildings and/or business personal property by a chosen percentage up to 9.5%. Throughout the policy period, this would be done on a prorated basis.

Steps the owner of a small business should take

Let's be honest. When it comes to managing your business during uncertain economic times, you have many concerns. After a claim, you shouldn't be concerned about your ability to rebuild. The following actions can offer some comfort:

  • Create a company continuity plan and keep it updated on a regular basis. Particular focus should be given to preparing for probable losses in property, liability, and company income. Talk to your agent about the proper business insurance coverage limitations.

  • To ascertain your amount of risk exposure, perform an extensive self-evaluation of the personal property owned by your company.

  • In order to guarantee that your small business is protected in an inflationary environment, ask your insurance agent about your coverage limits and make sure you have the finest coverage on your BOP policy.

Small Business Insurance

Speak with one of our Retcho Agency agents to find out what kinds of small business insurance might be suitable to secure your company and the required level of protection.



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