Liberty Mutual: Under-Covered, or Under the Right Coverage? Why Umbrella Policies Matter to Small Businesses

Under-Covered, or Under the Right Coverage? Why Umbrella Policies Matter to Small Businesses

Small businesses (SMBs) are a sizable part of the U.S. economy, generating nearly two thirds of net new jobs in the past 20 years.[1] But this vital sector would not exist without the contribution of countless hours and dollars by entrepreneurial business owners–to say nothing of their emotional and intellectual investments. Small business owners’ personal and professional efforts are truly impressive, and it’s tragic when what they’ve worked so hard to build is put at risk due to the unforeseen events and costs associated with accidents and the third-party lawsuits that often result.

And while damages from such accidents and lawsuits can exceed the $1 million limits of primary commercial insurance policies, there is an affordable solution for protecting the livelihoods of SMBs: umbrella insurance.

Prevention Isn’t Enough

Employers can–and should–go to great lengths to address workplace safety and accident prevention to protect employees, the public, and their bottom lines: properly using equipment, thoroughly training their staff, and following workplace safety practices to reduce risk. Even so, any SMB can experience a catastrophic accident that could result in injuries to customers, vendors, and others. Given the medical costs and legal expenses often associated with such accidents, these accidents can jeopardize a business’s relationships, reputation, and even viability. Many businesses simply don’t have the capital to recover.

The Increasing Cost of Accidents

The expense of accidents continues to rise, for multiple reasons. First, medical costs are increasing. “Consider your own medical expenses,” says Tim Hagen, a casualty underwriting strategy leader at Liberty Mutual, “and how they’ve increased in the past five to ten years. And it’s more than a matter of costly procedures and drugs; lifespans have also increased, so if someone needs lifelong care following an accident, that’s calculated into damages.” If an SMB needs to make payments to an injured customer, patron, or vendor for an entire lifespan, they could be looking at years of debt.

Tort costs, including lawsuit defense costs, administrative expenses, and damages paid to third parties, are also rising. Between 1970 and 2010, U.S. tort expenses have risen from $14 billion to $265 billion.[2] Small businesses, despite their relatively small individual footprints, carry a significant share of these costs. In fact, while comprising less than 25 percent of U.S. revenue, small businesses incur more than 75 percent of tort liability expenses. Some of these costs are covered by primary insurance policies, but considering that SMBs are paying over $35 billion of these expenses out of their own pockets annually, it follows that many don’t have adequate insurance coverage.[3]

Why Are SMBs Under-Insured?

According to Hagen, the problem is that many business owners are unaware of the limits of their coverage until faced with the fallout from an accident. “If a business-related automobile accident occurs and multiple parties are injured,” he says, “the total claim can easily go over a million dollars–and primary commercial policies generally stop there. The business is responsible for paying the remainder, and many small businesses just don’t have the assets.”

Jeanne Crifo, assistant director at Liberty Mutual, agrees that lack of knowledge is a primary reason why SMBs don’t have adequate coverage, noting that many companies have to experience an accident, or know someone else who does, before purchasing the proper coverage. She adds that, “A million dollars isn’t worth what it used to be.” In fact, the million-dollar ceiling of most primary commercial insurance policies became the standard limit decades ago, but that same million dollars from 1985 is now worth only about $225,000 in today’s value. With rising medical and legal costs, this figure is just not enough coverage when disaster unexpectedly strikes.

The Affordability of Umbrella Coverage

To grant small businesses the protection they need, Hagen and Crifo recommend purchasing umbrella coverage. As the name implies, these policies offer insurance protection above primary commercial policies, helping SMBs weather accidents that might otherwise put them out of business. Currently, only between 25 and 50 percent of SMBs have umbrella coverage; the rest face potentially serious expenses related to accidents.

According to Hagen, SMB owners who haven’t purchased umbrella coverage are likely to be surprised at its affordability. “They might have a perception that umbrella’s cost is comparable to their primary coverage–that the cost would be a multiple of their current coverage. But, in reality, they’re getting multiple coverage–from one million to two million to five–at a fraction of their primary policy pricing. They’re thinking that they can’t afford it, not with tight small-business margins, but they’d be surprised at the affordability.” Crifo agrees, adding that the cost of umbrella coverage is negligible compared with the potential costs incurred by a catastrophic accident.

Getting Covered

If your small business doesn’t have umbrella coverage–or if you’re concerned that it doesn’t have enough–speak with your independent insurance agent, who can recommend a provider with specific experience in umbrella coverage. Larger insurance providers like Liberty Mutual, the provider for whom both Hagen and Crifo work, have extensive expertise navigating large claims that involve tort costs and prolonged medical expenses. Liberty Mutual also offers crisis management support, covering up to $250,000 worth of consulting expenses from a leading public-relations firm, to help SMBs navigate the PR fallout that might follow a catastrophic accident.

Your small business could be under-insured and now is the time to start planning. The costs of acquiring, or increasing, umbrella coverage is likely much lower than you think–and the risks of waiting might just be more than your business can bear.


[1]  SBA. “Frequently Asked Questions. Advocacy: The Voice of the Small Business in Government.”

[2] Towers Watson. “U.S. Tort Costs Trends: 2011 Update.”

[3] U.S. Chamber Institute for Legal Reform. “Tort Liability Costs for Small Business.”

Client: Liberty Mutual

Date: July 14, 2016