Economic slowdowns and recessions offer significant hurdles for businesses. Companies will face further instability as the risk of litigation, occupational fraud, and cyber-attacks rises, in addition to the risk of lower revenues, increasing expenditures, and declining valuations. To that aim, many small business owners are scrutinizing their expenditure budgets to find where they can save money. Even minor cost cuts might pile up, prolonging the time you can operate with little or no revenue.
You may have pondered canceling your E&O (or professional liability) insurance as you cut non-essential expenses. This might save you hundreds of dollars yearly in office rent or salary (if you have employees). However, before doing so, consider the possible cost savings against the risk of being defenseless in case of a customer lawsuit.
A comprehensive executive and management liability insurance portfolio is crucial for protecting the business entity, its balance sheet, and the c-suite, especially during economic downturns.
Is Insurance an Essential Expense?
Many small-business consultants feel it is an essential expense. This is because it offers cash to cover court judgments and settlements resulting from consumer disputes. Without this money, you’d have to cover your legal bills, potentially bankrupting your company and jeopardizing your assets. Rather than considering business insurance as a frivolous investment, experts advise classifying it in the same category as health insurance—something that should be kept in force at all costs. E&O, or professional liability insurance, is similar to health insurance because it helps you stay physically and mentally fit. It also helps your firm stay financially robust for years to come.
There is never a good time to go without insurance but now is a horrible time. With the United States economy set to suffer a severe recession or worse, businesses will soon face increased financial stress. Just as you may be struggling financially, people may be out of work and depleting their funds at an alarming rate. Clients may seek alternative sources of income, such as your professional liability insurance policy, if this occurs. Of course, only some clients will do this. However, someone in dire need of money may clutch at any straw.
In reality, if the financial crisis worsens, small businesses will face an increase in liability claims. In this climate, the last thing you should do is cancel your insurance.
Should You Opt for Cheaper Insurance?
You may be thinking of canceling your current insurance and replacing it with a less expensive one. Switching to a lower-rated insurer (with less ability to absorb financial shocks) or a non-admitted insurer may be necessary (which are unregulated by state insurance departments). In the second situation, you’ll be dealing with a company whose benefits, pricing, and policy forms aren’t subject to approval by the insurance commissioner. In truth, non-admitted coverage is not insurance in the legal sense, and you won’t see that phrase in your sales materials or policy documentation. As a result, while purchasing E&O or professional liability insurance from a non-admitted insurer may save you money initially, it may cost you more in the long run if the firm fails to follow its obligations.
Another alternative is to reduce the policy limit. You can reduce your premium by lowering the maximum amount your policy will pay for a covered loss. However, it would be best to compare the benefits of a marginally lower cost against the greater danger you may experience by reducing your safety net.
Need Business Insurance? We Have You Covered
Keep in mind that skimping on business insurance is a bad idea if the economy is in a slump and business isn’t as brisk as it should be. Remember that recessions are an unfortunate feature of today’s global corporate landscape. Recessions frequently result in layoffs, lower compensation, demotions, and overall budget reduction. Business owners must do all possible to keep their companies viable, but cutting back on business insurance is not a sound business practice.
Insurance is always necessary, and canceling it may save you less money than you imagined and will undoubtedly increase your legal risks in these uncertain times. Being cash-strapped as a result of the coronavirus crisis is a significant concern. However, reducing your legal protection to save money may be a penny-wise but pound-foolish answer. Reviewing other items in your budget will result in comparable savings without exposing you to as much more risk.
Contact our team today to learn what insurance options are available. We can help you get the insurance coverage your business deserves.