Home-Businesses Go Bare
The majority of home-based businesses do not have insurance to cover their commercial exposures, and a significant number dont even understand why they need such coverage, a survey by an independent agent group has revealed.
Fifty-eight percent of home-based businesses do not have business insurance, and of that number, 87 percent do not even understand the reasons for purchasing such coverage, according to the survey, commissioned by the Alexandria, Va.-based Independent Insurance Agents & Brokers of America.
It is estimated that there are more than 11 million U.S. households that have a full- or part-time home business. When a similar IIABA survey was conducted in 1997, it was estimated that of the 8.4 million home-based firms, 60 percent lacked insurance.
This year, when asked why they did not have insurance:
39 percent said they either thought they did not need specific coverage or thought they had some other type of coverage for the business.
29 percent thought the business was too small or posed no risk.
19 percent did not have a reason for not having insurance.
The survey indicated that the greater the income level of a business, the more likely the business would get insurance, but a substantial number still went bare.
Regarding losses, the survey found that 11 percent of the businesses without insurance experienced a loss, compared to 9 percent with insurance.
There are a number of lessons agents and the industry can learn from the survey, noted Madelyn Flannagan, IIABAs vice president of education and research.
While the number of people who are running businesses out of their home increased 30 percent since the last survey, the percentage of such people who are insured has not grown. “The industry has a lot to do to educate folks,” she observed.
She said there appears to be an assumption among businessowners that insurance is too expensive, especially when starting up their home-based firms. Ms. Flannagan said she had a conversation with a representative of the home-businessowners group, which recommended that start-up businesses not get insurance because of the cost.
“If they look at this as a way to save money, then they are putting themselves at huge financial risk,” she noted. “There is an education process [that needs to begin] for the consumer, agents and carriers.”
Agents should make it a standard question during the renewal process on homeowners insurance as to whether a customer or family member is running a business out of the home, she suggested.
“When we find one-in-10 Americans are running a business out of their home, thats a lot,” she noted, adding that customers need to understand that a $250 investment in premiums can provide $250,000 or more in coverage.
The survey was conducted by International Communications Research, based in Media, Pa. (which also conducted the 1997 study) from Feb. 6 to 10. The survey results are based on a national telephone poll of 1,011 U.S. households and has a margin error of plus-or-minus 3.1 percent.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 27, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.