10 Most Common Types of Business Insurance Claims

Claims Vary in Frequency and Severity

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What types of insurance claims do small businesses file most often? Which are the most costly? A claims study performed by The Hartford, a financial services company, in 2015 provides some answers. The insurer analyzed claims data from over one million policies purchased by small business owners. The data covered five years and applied to liability, auto, and property claims.

There's a 40% Chance of a Claim

A key finding of The Hartford's study was that 40% of small businesses will incur a property or liability loss within the next 10 years. This may surprise many business owners, who often view insurance policies as protection against extraordinary events .

The Hartford's study showed that unexpected events occur more frequently than many small business owners think they do.

Loss Frequency Versus Severity

The Hartford's study looked at two key aspects of insurance claims: frequency and severity. The term claim frequency means the probability that a loss will occur. Some types of losses happen frequently. For example, cleaning businesses often incur numerous small property damage claims. Consequently, liability policies covering cleaning businesses often include a property damage deductible.

Claim severity refers to the size of a loss. Some claims may occur infrequently but have a high severity. For example, a surgeon may perform hundreds of surgeries before she incurs a single malpractice claim. When a claim is eventually filed, it is likely to be substantial.

Insurers limit their exposure to frequent or severe claims by requiring the policyholder to assume some of the risk. This can be accomplished via a deductible or self-insurance.

Most Frequent Claims Against Businesses

As part of its claims study, The Hartford grouped the business insurance claims into categories, such as Fire and Product Liability. It then analyzed the data to determine which categories of claims had the highest frequency. The results are shown below. Here are the 10 most common types of claims listed in descending order. The percentages reflect the percent of business owners affected by each type of loss within the previous five years .

  1. Burglary and theft20%: The perpetrators may be dishonest employees or outsiders. Businesses can prevent such claims by implementing background checks and installing fences and gates, adequate lighting, and access controls to the premises.
  2. Water and freezing damage15%: Businesses can avoid freezing losses by clearing roofs of snow and ice, training key workers how to shut off the water, and maintaining an adequate temperature indoors so pipes don't freeze.
  3. Wind and hail damage15%: Businesses can mitigate loses by maintaining trees properly, anchoring outdoor equipment, and protecting windows from flying objects.
  4. Fire10%: To minimize fire losses, business owners should have an emergency preparedness plan in place. They should also conduct periodic fire drills and test fire detection and suppression equipment regularly.
  5. Customer slips and falls10%: Businesses can prevent many slip-and-fall accidents by practicing good housekeeping and proper maintenance.
  6. Customer injury and damageLess than 5%: A customer can be injured at a business location if, say a ceiling tile falls on his head or an employee spills hot coffee on him.
  7. Product liabilityLess than 5%: A company's vulnerability to a product liability claim depends on a variety of factors. These include the types of products it sells and the warranties it provides.
  8. Struck by an objectLess than 5%: A wide variety of moving objects can cause injuries. Examples are cars and trucks, mobile equipment, and falling construction tools. 
  9. Reputational harmLess than 5%: These are third-party claims for acts such as libel and slander that allegedly damaged the plaintiff's reputation. To avoid such claims, businesses should refrain from criticizing competitors publicly. They should also obtain permission from content owners before posting content on their website.
  10. Vehicular accidentLess than 5%: Businesses can help prevent accidents by instituting a vehicle safety program. They can also ask their insurer or agent to review employees' motor vehicle reports.

The Most Costly Claims

The Hartford calculated the average cost of a claim in each of the 10 categories. Here is the ranking in descending order based on severity.

  1. Reputational harm: $50,000
  2. Vehicular accident: $45,000
  3. Fire: $35,000
  4. Product liability: $35,000
  5. Customer injury or damage: $30,000
  6. Wind and hail damage: $26,000
  7. Customer slips and falls: $20,000
  8. Water and freezing damage: $17,000
  9. Struck by an object: $10,000
  10. Burglary and theft: $8,000

As this list demonstrates, some types of claims are generally costlier than others. The Hartford found that liability claims are likely to be larger if a lawsuit is filed. Of the general liability claims the insurer analyzed, about 35% resulted in a lawsuit.

Highlights of the Study

  • Forty percent of small business owners can expect to sustain a loss within the next 10 years.
  • Claims vary in frequency and severity. Burglary and theft claims have a high frequency and low severity. The reverse is true for reputational damage claims.
  • Many claims can be prevented through proper risk management.