As many as 37% of business owners feel unprepared to take on a recession, insurance is the way to go if you want to prevent the recession from undercutting your business.
The global recession is upon us, coming sooner than everyone expected. According to tech company Zapier, 26% of start-up founders don’t believe their companies can last a year in a recession.
Business insurance offers several benefits that allow you to protect yourself from the effects of the recession.
Here’s how you use business insurance to continue operating with the impending recession on your tail.
Why A Global Recession Is Close
The global economy has been showing signs of weakness for some time. Stock markets worldwide have been falling, and several major economies are headed in the wrong direction.
In 2019, the European Union announced lower-than-expected growth. Chinese economic growth has been slowing, and the country’s economy is dealing with several issues. The pandemic also affected much of the world, halting global productivity.
The pandemic has plunged the world into chaos, bringing countries to their knees. The streets of major cities are empty, and people work from their homes.
One side effect of a global economic meltdown is the severe economic impact on small business owners. As consumers abandon retail stores and restaurants and shut their doors, countless entrepreneurs lose their jobs.
The Ukraine-Russia war has erupted, a civil war that can affect the global economy. While the actual conflict is relatively small, a full-on war between Russia and the rest of the world could have disastrous effects.
The war affects global supply for several crucial supplies, including wheat and produce from Ukraine and oil from Russia. This disruption in the supply chain and the shortages from the pandemic create a template for a potential recession sooner rather than later.
Cutting Insurance Can Be Tempting
In times of economic crisis, expenses need to be cut. This often leads to business owners thinking they can forgo business insurance coverage. Unfortunately, this is a risky game to play. If an incident occurs and you don’t have the right coverage, you could be in serious financial trouble.
When the economy is bad, cutting costs is tempting. However, business insurance policies are things you should stick around for, even if you’ve cut back on other expenses.
Cutting coverage is an easy way to end up with a hefty bill. You're on the hook for the bill if you drop your workers’ comp and liability insurance and an employee gets injured. The same goes for your general liability policy.
Because so many companies are cutting back on insurance coverage, insurance companies will jack up the rates on their policies. Remain covered, and you won’t have to pay an arm and a leg for your insurance.
Recession Is Not The Time To Go Uninsured
Getting a business insurance policy can be pointless when the economy is booming. During boom times, you have more than enough money in the bank to cover incidents and lawsuits.
During tough times, however, you have fewer dollars in your bank account. If your business is suddenly hit with a lawsuit or massive damages, you’ll need to get a loan or line of credit to cover the damage.
It may seem wise to have a bare-bones insurance policy, but that's the worst thing you can do now. You need comprehensive coverage, especially when the economic times get tough. If you thought 2008 was difficult, it would be worse this time.
The 2008 financial crisis saw many banks fail. Also, many companies went under because they couldn’t afford to pay their bills.
By staying insured, you’ll be protected if another company goes under or if you’re struggling financially. When you know everything will be okay, it’s much easier to focus on running and boosting your company.
Protecting Yourself With Directors And Officers Liability Insurance
If your company is incorporated, you have directors and officer's liability insurance coverage. This insurance covers you, the individual directors, and the company's officers. This insurance policy is designed to cover your company’s executives. Specifically, it protects the company and the executive(s’) personal assets.
Companies with directors and officers (D&O) liability coverage enjoy limited liability from management decisions. This protection is critical in turbulent economic times when you risk losing more than you gain.
The nature of the job market has changed. Fewer jobs provide security, and more people are starting their businesses. As a result, more small businesses are incorporated, and many need D&O.
You probably understand that even your best employees make mistakes. Mistakes can lead to lawsuits, and these suits could lead to your directors paying out large sums of money.
With this insurance policy, your board of directors and other top managers have nothing to worry about. Their lives are protected from these potential losses.
Insurance In An Economic Crisis Is A Must
Most businesses see an increase in claims during an economic decline. Whether employees sue for discrimination, clients file suits for failure to pay, or workers are fired for no valid reason, economic downturns bring plenty of legal issues.
When your company is being sued, you need the proper amount of legal defense. Your insurance company can help you find a good lawyer. They’ll help you find someone who can defend you against major cases.
In an economic downturn, you can't afford to go uninsured. Even if you cut back in other areas, don't make the mistake of dropping your insurance premiums. Your business is too important.
The smartest thing to do is to shop around for lower rates. You could also talk with your insurance agent about other ways to cut costs. Then, make sure you're covered with a comprehensive insurance plan.
Should You Replace Your Current Policy With Cheaper Insurance?
When money is tight, replacing your current business with a cheaper one may seem like a good idea. While saving money is always good, the cheaper option is not always the best. While cost can be essential, you may miss out on other vital services if you're just looking for the cheapest deal.
The first thing you’ll want to do is to reevaluate your current needs. Are you paying for a policy that you don’t need?
The prevailing wisdom is always to buy more "protection" than you need. Most experts recommend that all businesses spend between one to three percent of their revenue on insurance. Lower-risk businesses can go for the lower limit, while high-risk ventures want to go on the upper limit.
For instance, if you're insuring your office building, you may want to insure it against floods (unless it's on the ground floor or a basement). Many flood-prone areas in the United States are low risk, but if you're in one of those high-risk zones, you'll need this type of additional coverage for the building.
You'll also want to look at optional coverage and decide if it's needed. For example, if one of your vehicles is involved in an accident and the other driver is seriously injured, they may want to seek compensation for lost wages.
If you're just starting your business and don't have much money, purchasing cheaper commercial insurance quotes may be tempting. Before you do, though, make sure you know what you're getting.
LEARN MORE: The Rogue Risk Way
Protect Yourself From The Recession Now
The recession is upon us, and the last thing any business wants is for the tide to sweep your investments. You can’t control the global or national economy, but you can take steps to prepare.
By buying proper insurance and taking steps to maximize value, you can protect yourself and your growing startup.
At Rogue Risk, we believe a solid commercial insurance program provides the sustainability needed for businesses to take the necessary risks for profitable growth.
If this is the kind of relationship that you would like with your insurance broker, we would love to talk to you.
- You can call or text us at 518.960.6600,
- Click here to contact us via email.
I look forward to introducing you to a new way of viewing your insurance program.
- Article by Sophia Young
- Photo by Kenny Eliason