Most Common Types of Commercial Insurance Claims

Running a business comes with its fair share of risks. From property damage to employee injuries, many unforeseen events can disrupt your operations and lead to financial losses. While most business owners fall prey to the optimism bias of ‘it won’t happen to me,’ losses due to incidents such as natural disasters, fires, theft, or water damage are widespread. That’s where business or commercial insurance comes into play. 

Here are some small business insurance claim statistics:

• In 2020, 55.8% of small businesses reported filing a claim, despite 76.2% experiencing an insurable event during the same year.¹
• Only 31% of small businesses purchase cyber insurance, despite the increasing threat of cyber-attacks.²
• Business interruption claims were the most commonly filed commercial insurance claims in 2020, accounting for 43% of all small business claims.
• Property damage claims accounted for 32% of all small business claims in 2020, making it the second most commonly filed claim.
• One-third of small businesses faced an insurable event in 2020.
• 75% of small business owners in the U.S. are underinsured, leaving them vulnerable to potential financial loss.³

These statistics show that small businesses face a range of insurable events and are at risk of a financial loss if they are not adequately insured.

Business insurance is a type of coverage that protects your company against unforeseen circumstances that can threaten your bottom line. In this article, we’ll dive into the most common types of business insurance claims and how you can protect your business from financial ruin.

What Is an Insurance Claim?

An insurance claim is a formal request to reimburse losses incurred due to an event covered by an existing insurance policy. Once a policyholder files an insurance claim, the insurance company will investigate the claim and determine if the loss or damage is covered under the policy. If the claim is covered, the insurance company will assess the amount of compensation the policyholder is entitled to receive.

Filing an insurance claim can be complex and time-consuming, but it is an important step in receiving the financial protection that insurance provides.

How Do Business Insurance Claims Work? 

Paid insurance claims compensate policyholders for financial loss, with premiums serving as consideration for the insurance contract. Common commercial insurance claims cover medical expenses, physical damage, loss of life, dwelling ownership liability, and automobile operation liability. The frequency of filed claims impacts insurance premiums for property and casualty policies, regardless of fault. 

More claims may result in rate hikes or coverage denial by the insurance company. The process of an insurance claim can vary depending on the type of insurance and the specific circumstances of the claim, but generally, the following steps are involved:

• Notify the insurance company: As soon as the policyholder becomes aware of a loss or damage that their insurance policy may cover, they should notify their insurance company as quickly as possible.
• Provide documentation: The insurance company will typically ask for documentation to support the claim, such as photos, police reports, or medical records. The policyholder should provide this information as soon as possible to avoid delays in processing the claim.
• Investigation: The insurance company will investigate the claim to determine if it is covered under the policy and to assess the extent of the loss or damage. This may involve interviews with the policyholder and witnesses, a site inspection, or a review of medical records.
• Claim evaluation: Once the investigation is complete, the insurance company will evaluate the claim and determine how much compensation the policyholder is entitled to receive under the policy. This may involve calculating the cost of repairs, medical bills, lost wages, or other expenses.
• Payment: If the claim is approved, the insurance company typically pays the policyholder to cover the losses or damages. Sometimes, the payment may be made directly to the service provider.

It’s important to note that even the most common business insurance claims can be complex and may take some time to process, especially if there are disputes or disagreements over the amount of compensation. However, the insurance company must act in good faith and promptly and fairly process the claim under the policy terms.

What Are the Types of Insurance Claims?

Small business owners buying commercial insurance policies assume they won’t experience losses often. However, a claims study by The Hartford reveals losses happen more frequently than expected, with insights on the most commonly filed and expensive types of claims.

Understanding the different types of insurance claims can help businesses make informed decisions when selecting insurance policies and filing claims. The most common types of small business insurance claims are: 

• Burglary and Theft (20%)
  Burglary and theft are common commercial insurance claims, particularly in retail, manufacturing, and construction. A commercial property insurance policy can cover the costs and damages, including property damage during a break-in.

• Fire Damage (10%)
  Small businesses, typically in manufacturing and restaurants, are prone to fire incidents, making it a common commercial insurance claim. A commercial property insurance claim can help recover financial losses such as building, equipment, and supply damage. Business income insurance can also cover income loss due to suspended operations caused by fire damage.

• Water and Freezing Damage (15%)
  Commercial water damage insurance claims cover water damage from sprinkler systems, burst pipes, and other related incidents. Such claims cover the costs of repairing damaged structures, removing mold, and replacing ruined carpets.

• Wind and Hail Damage (15%)
  Wind and hail damage are common commercial insurance claims in storm-prone regions. Strong winds can cause trees to fall on buildings, hail can break roofs and windows. A commercial property insurance policy covers the expenses of such damage to a business’s premises.

• Automobile Accidents (Less than 5%)
  Distracted drivers make the roads dangerous, and businesses that use commercial vehicles are at risk of financial losses due to accidents. Commercial auto insurance typically covers liability for bodily injury and property damage caused by a business-owned vehicle, as well as collision and comprehensive coverage for damage to the vehicle itself.

• Slips and Falls by Customers (10%)
  Business owners may be responsible for medical expenses, legal fees, and lost wages if a customer falls and injures themselves on their premises. Retail stores and restaurants often face such incidents and can mitigate financial losses with a general liability insurance policy that covers such liabilities.

• Customer Injury and Property Damage (Less than 5%)
  General liability insurance shields businesses from personal injury to customers and property damage. This general liability insurance policy covers costs of accidents such as damage to customer’s property by an employee and customer accidents that occur on the business premises and helps cover medical costs, property repairs, and legal fees.

• Struck by an Object (Less than 5%)
  Industries like forestry, manufacturing, construction, and architecture face the risk of workplace accidents, such as employees being struck by objects or equipment. Struck-by-object type insurance claims cover such incidents, and workers’ compensation insurance covers medical expenses and lost wages. If the worker loses their life, the policy ensures dependents receive benefits.

• Product Liability (Less than 5%)
  A product liability insurance claim can prevent a manufacturer from being liable for damages, illnesses, or injuries caused by a defective product. Manufacturing, distribution, and retail industries typically experience these kinds of claims. 
  Businesses can protect themselves and eliminate liability risks from faulty products with general liability and product liability insurance policies. These policies cover legal fees, lost wages, medical bills, and even the expenses associated with conducting a product recall.

• Reputational Harm (Less than 5%)
  Organizations can face damage to their reputation from lawsuits or data breaches. General liability and professional liability insurance policies play a crucial role in safeguarding businesses from such financial losses. Companies that store customer data and media companies require this coverage.

Most Costly Business Insurance Claims

According to Hartford’s study, the costliest insurance claims for small businesses are: 

1. Reputational harm: Reputational harm claims proved to be among the costliest for small businesses, with an average of $50,000 and potential costs of up to $75,000 if a lawsuit is involved.
2. Vehicle accidents: The average claim amount for vehicle accident claims was $45,000. 
3. Fire: The average claim amount for fire claims was $35,000. 
4. Product liability: The average claim amount for product liability claims was $35,000. 
5. Customer injury or damage: The average claim amount for customer injury or damage claims was $30,000. 
6. Wind and hail damage: The average claim amount for wind and hail damage claims was $26,000. 
7. Customer slip-and-fall accidents: The average claim amount for customer slip-and-fall claims was $20,000. 
8. Water and freezing damage: The average claim amount for water and freezing damage claims was $17,000. 
9. Struck by an object: The average claim amount for claims was $10,000. 
10. Burglary and theft: The average claim amount for burglary and theft claims was $8,000. 

What If My Business Insurance Claim Gets Denied? 

You can take steps to contest the denial of your insurance claim and potentially overturn the decision. Here are some general steps to consider: 

• Gather evidence: Review the denial letter carefully, and then gather any relevant documentation, such as policy details, claim information, etc. Having this information on hand can help bolster your case when presenting your appeal.

• Understand the reason for denial: Carefully review the denial letter to understand the reasons the insurance company cited for denying your claim. This will help you identify gaps or discrepancies you can address in your appeal. 

• Review your policy: Ensure that you familiarize yourself with the coverage details and terms of your insurance policy. This will help you verify whether the denial is justified based on the language stated in the policy.

• Follow the appeal process: Most insurance companies have a formal process in place for appealing denied claims. To contest the denial, follow their specific appeal process, which may involve submitting a written appeal letter with relevant information. Additionally, make sure to adhere to any deadlines or requirements outlined by the insurer during the appeal procedure.

• Seek professional assistance: Consider consulting with a qualified professional, such as an insurance agent, attorney, or healthcare provider, if you need clarification on the appeal process or require assistance. The dispute for type of insurance claim will determine the best professional to seek guidance from.

• Be concise and thorough: When writing your appeal letter, clearly explain your position and provide relevant information.  

• Be persistent: Insurance claim appeals can sometimes be a lengthy process. Prepare to follow up with the insurance company, provide any requested additional information or documentation, and persistently contest the denial.

Understanding the most common types of commercial insurance claims is crucial for businesses to safeguard themselves against potential risks. If you’re a business owner looking for comprehensive insurance coverage, consider exploring different types of business insurances and researching the best small business insurance providers to ensure your business is adequately protected.