Allow me to introduce Simon Glairy, a renowned expert in insurance and Insurtech, with a deep focus on risk management and AI-driven risk assessment. With years of experience guiding small businesses through the complexities of coverage, Simon offers invaluable insights into the challenges and opportunities in this space. Today, we dive into the critical issue of underinsurance among small businesses, exploring why so many owners are unprotected, the misunderstandings around policies, the impact on communities, and the growing threat of cyber risks. Join us for a conversation that unpacks these pressing concerns and sheds light on how the industry can better support the backbone of our economy.
What does it mean when we hear that 77% of small businesses in the U.S. are underinsured, and why should this statistic concern us?
When we say 77% of small businesses are underinsured, it means that a vast majority lack adequate coverage to protect against the risks they face daily. This could be due to having the wrong type of policy, insufficient limits, or no insurance at all for certain exposures. It’s concerning because small businesses are often operating on tight margins, and a single uninsured event—like a lawsuit or property damage—can wipe them out. This not only affects the business owner but also employees, customers, and the local economy that depends on these enterprises.
How has this trend of underinsurance changed over the past year, and what factors might be driving it?
Compared to last year, we’ve seen a slight increase of over 2% in underinsured small businesses. This uptick could be tied to rising costs of insurance premiums, which might lead owners to cut corners or opt for minimal coverage. Additionally, as businesses evolve—think more online operations or remote work—new risks emerge that owners might not recognize or know how to address with their existing policies. Economic pressures and a lack of education about evolving risks are likely big contributors.
Why do you think so many small business owners struggle to grasp the details of their insurance coverage?
A lot of it comes down to the complexity of insurance itself. Small business owners are experts in their own fields—whether it’s running a bakery or a tech startup—but insurance is a whole different language. Policies are often filled with technical terms and fine print that can be overwhelming. On top of that, many owners don’t have the time or resources to sit down with an agent or broker to fully understand what they’re buying. It’s not a lack of effort; it’s just not their area of expertise.
One major finding is that 74% of owners misunderstand what a general liability policy covers. What are some of the biggest misconceptions you’ve come across?
General liability, or GL, is often seen as a catch-all, but it’s not. A common misconception is that it covers property damage from natural disasters like floods or fires at their business location. In reality, GL typically covers third-party claims—like if a customer slips and falls in your store—but not damage to your own property. Many owners are shocked to learn they need separate policies for things like fire or flood, which can leave them vulnerable if they haven’t planned ahead.
Can you walk us through a specific example of something many think is covered by general liability but actually isn’t?
Sure, let’s take flood damage as an example. A small business owner with a retail shop might assume their GL policy will cover repairs if a storm causes flooding in their store. But GL doesn’t touch that—it’s focused on liability to others, not your own property. They’d need a separate flood insurance policy, often through a program like the National Flood Insurance Program, to be protected. Without it, they’re on the hook for all repair costs, which can be devastating.
There’s been a 9% improvement in understanding general liability policies since last year. What do you think has contributed to this progress?
I think the industry is starting to wake up to the need for better education. More insurers and agents are offering workshops, online tools, and simplified guides to break down what policies like GL actually cover. Social media and digital platforms have also made it easier to share bite-sized, easy-to-digest content about insurance. Plus, as more small businesses face claims or hear horror stories from peers, there’s a growing awareness that they need to ask questions and get clarity on their coverage.
Insurance terminology is often described as tough to master. What specific terms or concepts do small business owners find most confusing?
Terms like “exclusions,” “deductibles,” and “limits of liability” often trip people up. Exclusions, for instance, are the things a policy doesn’t cover, but they’re buried in dense contract language, so owners might not realize what’s left out until it’s too late. Similarly, understanding the difference between “replacement cost” and “actual cash value” for property damage claims can be a head-scratcher. These concepts directly impact how much they’ll get paid out after a loss, but they’re not intuitive without explanation.
How can the insurance industry make policies more accessible and easier to understand for non-experts?
The industry needs to prioritize plain language. That means rewriting policies and marketing materials to avoid jargon and use everyday terms. Offering visual aids, like infographics or videos, can also help explain complex ideas. Beyond that, insurers should invest in one-on-one consultations or digital tools that let owners input their business details and get tailored recommendations. Building trust through transparency—clearly stating what’s covered and what isn’t—would go a long way too.
Small businesses are often called the heartbeat of our communities and economy. Can you elaborate on why they hold such an important role?
Small businesses are the lifeblood of local economies—they create jobs, support families, and foster community identity. Unlike big corporations, they often source locally, sponsor little league teams, and provide personalized services that build connections. Economically, they account for a huge chunk of employment in the U.S., so when they thrive, everyone benefits. They’re innovators too, often taking risks that drive growth. Without them, we’d lose both economic stability and the unique character of our neighborhoods.
How does underinsurance put these vital businesses, and by extension our economy, at risk?
Underinsurance is like playing a high-stakes game without a safety net. If a small business faces a major loss—say, a lawsuit or a cyberattack—and can’t recover because they lack coverage, they might have to shut down. That means lost jobs, reduced tax revenue, and a ripple effect on suppliers and other local businesses. On a larger scale, if too many small businesses fail due to being underinsured, it drags down economic growth and consumer confidence. It’s a domino effect that can hit hard.
Cyber risks are a growing concern, with 75% of small businesses facing higher exposure. What kinds of activities make them particularly vulnerable?
Simply being online puts small businesses at risk. Having a website, accepting online payments, or even using email for customer communication opens the door to cyberattacks like phishing, ransomware, or data breaches. Many small businesses store sensitive customer info—think credit card details or personal data—but don’t have robust security measures in place. Even something as basic as an employee clicking a bad link can lead to a major breach, and the costs of recovery can be staggering without proper protection.
What’s your forecast for the future of cyber risk management among small businesses, and how can they prepare?
I expect cyber risks to keep growing as more small businesses digitize their operations. Hackers are getting smarter, and even small targets are fair game because they often lack strong defenses. My forecast is that we’ll see more insurers offering affordable, tailored cyber policies, and hopefully, more education on basic cybersecurity practices. For preparation, small businesses should start with the basics—strong passwords, regular software updates, and employee training on spotting scams. Partnering with an insurer to get cyber coverage is also critical, as the financial hit from an attack can be a game-ender.
