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How General Liability Insurance Can Make or Break Small Businesses

Protect small businesses by ensuring general liability protection covers these emerging risks.
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how general liability insurance can make or break small businesses

The definition of the “workplace" seems to be changing every day. As we plod through various stages of coronavirus pandemic variants, prevention measures and mandates, this change is more apparent than ever.

The world shifted significantly over the past 18 months and with it the businesses that operate in it. In recent years, about 600,000 establishments have permanently closed per year, according to a study released by the Federal Reserve. The pandemic resulted in the permanent closure of roughly 200,000 more U.S. single-location establishments during the first year of COVID-19 than expected, implying a closure rate of about one-quarter to one-third above normal, according to the study.

For many businesses, and in particular small businesses, the pandemic created many challenges, but with it came “new opportunities to generate revenue outside of their traditional means," says Sean Givler, senior vice president, commercial lines, The Cincinnati Insurance Companies.

For example, restaurants are using wait staff to deliver food to customers at home and manufacturers have changed operations to produce personal protective equipment for the first time. “While some of these changed operations will be temporary, the market must fully understand any continuing operational changes to ensure proper coverage for these risks," Givler says.

Protecting a small business from changing risks is a daunting endeavor but ensuring adequate commercial general liability coverage is in place will protect against accidents that could potentially amount to a major expense.

“One of the greatest challenges for small businesses is recognizing what exposures are or are not addressed through general liability coverage, as well as remaining informed of emerging risks that could impact their business," Givler says.

“A small business could experience general liability claims due to a variety of scenarios—a product it sells or a service it provides causes injury to a customer, or perhaps a guest slips and falls on its premises—and these claims can often lead to lawsuits," says Lindsay Guerrant, small commercial product strategy lead, Liberty Mutual. “The cost of litigation combined with increasing court verdicts are amplifying severity in claims and putting pressure on the market."

Social inflation is leading to rising claim payouts and business owners should be cognizant of the impact on the cost of coverage. “We're seeing severity increases driven by factors such as rising legal expenses and medical costs," says Fred Snyder, assistant vice president, business insurance product, Travelers.

In addition to social inflation, “other more tangible attributes are also in play, like the influence of economic inflation in pockets on increases in the medical cost trend in bodily injury liability cases— something we often think about in workers compensation but that also applies directly to general liability claims," says John Sakakeeny, vice president, product management, The Hartford. “Underlying drivers of this trend are advances in medical technology and new treatments, which have the benefit of allowing a fuller physical recovery by third-party claimants—just as for employees in the workers comp space."

“We are also seeing more technology in the workplace, including wearables, remote monitoring systems and applications of artificial intelligence," Snyder says. “These technologies are changing our environment, the way we work and our interactions with others, which then creates new liability exposures."

Due to the pandemic, many small businesses with physical locations closed, but “the share of e-commerce-based small businesses and those offering virtual services rose to levels the U.S. has never seen," Guerrant says. “General liability coverage needs will be inherently different depending on how a business is conducted, so those agents that keep a pulse on changing market conditions will be well equipped to advise clients as the economy rebounds."

“Agents have an opportunity to help customers understand their broader exposure and advise on when a standalone general liability product is best, when a business owners policy is sufficient, or when endorsements are necessary to provide the appropriate protection," Guerrant says. “In particular, price-conscious customers may not be thinking about the full extent of their risk, and agents should be educating clients on what a general liability policy is and what it isn't."

Olivia Overman is IA content editor.

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Monday, October 25, 2021
General Liability