When should SMBs report theft to their carriers?

When should SMBs report theft to their carriers? | Insurance Business America

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When should SMBs report theft to their carriers?

It’s a surprisingly complex, personal decision…

Theft is a pervasively common risk for retailers. But for small to medium-sized businesses (SMBs), even minor theft can be significant, often becoming death by a thousand cuts. Unlike larger companies, small retailers usually operate with thinner profit margins with less financial buffer to absorb losses from theft.

A Forbes survey of 660 SMB retailers nationwide revealed that a vast majority (90%) have experienced theft, and three-quarters (75%) see theft on a monthly basis. More concerningly, the survey found that 41% of SMB retailers reported the value of items stolen in 2023 had increased compared to previous years.

However, only a third (33%) reported these incidents to their insurance carrier. The top reasons for SMBs not reporting theft to their carriers were that the value of the stolen items was not worth filing a claim for (74%) and that they feared their insurance rates would go up (52%).

Dan Wahl (pictured), a small-business insurance expert and sales manager at Aon, isn’t surprised by these reasons. He said the decision to report a theft and make an insurance claim can be surprisingly complex and personal. “Am I comfortable paying for this out of pocket? Is this something I want to take up with my insurance carrier?” Wahl said.

Why don’t SMB policyholders report theft to their carriers?

One factor influencing SMBs retailers’ decision on theft claims is their insurance deductibles. High deductibles can deter business owners from filing claims for smaller losses.

“If you were to get in a little fender bender, and the damage to somebody else’s car was maybe $1,500, and you have a $1,000 deductible on your auto insurance policy, chances are you’re probably not going to risk the claim,” Wahl illustrated.

Insurance carriers do keep tabs on how much money they paid out in these claims, and Wahl noted that frequent claims can lead to higher insurance rates, particularly upon renewal. In some cases, too many claims may lead the carrier to refuse to renew the policy altogether.

“You might be paying higher rates for a certain amount of time depending on the carrier, typically around three to five, maybe six years,” Wahl said. Losing a favourable carrier could also force SMBs into more expensive surplus line insurance.

However, it’s not always the case that an SMB retailer’s insurance rates will increase following a claim. Most carriers will consider the balance between the severity and volume of claims, Wahl pointed out.

“One catastrophic claim could be the same effect as several small claims, absolutely,” he said.

Theft claims – how can brokers help?

The Forbes survey also highlighted gaps in SMB retailers’ knowledge about commercial insurance. Other top reasons SMBs cited for not filing theft claims with their insurer included:

Not having insurance coverage for theft (42%)
Claims being too time-consuming (29%)
Not knowing how to file an insurance claim (18%)

Brokers play a crucial role in advising SMB clients on these matters. While SMBs aren’t legally required to disclose a theft, they should be proactive about their insurance policies and be aware of all their options for financial protection, said Wahl.

Ensuring proper coverage requires regular consultations between brokers and SMBs. Brokers should guide insureds in understanding policy details to avoid gaps.

“I cannot tell you the number of times that a client purchased a general liability policy, thinking that they had property [coverage] attached to it. But it’s just not there,” Wahl said.

He recommended businesses ensure they have commercial package policies or appropriate property coverage and verify that theft is explicitly included.

Theft mitigation is also vital. Practical preventive measures such as installing security cameras and burglar alarms can go a long way. Store location, open floor plans for better visibility, and employee training are also critical for deterrence.

Finally, Wahl underscored the importance of helping SMBs shop around for their policies, especially amid increasing rates in the market.

“We are definitely noticing the premiums increase, largely due to the rising cost of rebuilding materials,” he said. “One carrier may have experienced significant losses in a particular industry and raised their rates accordingly. Regularly shopping for the best pricing, even once a year or every two years, is crucial.”

Do you agree with these tips? Have you advised SMBs on theft claims? Please share your thoughts in the comments below.

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