January 8, 2024 Gaps In Insurance Created By Complex Risks

From extreme weather and cyberattacks, now is the time for industry to assess risks and fill any potential voids in insurance.

By Tracey Ant, Head of Middle & Large Commercial Business Units

From slips, trips, and falls to extreme weather and cyberattacks, businesses are regularly confronted with risks to operations and profitability. In 2023, elevated building costs, increased flooding, and growing ransomware attacks made it compelling for business owners to make sure they had adequate insurance to stay ahead of property and liability exposures. However, if left unchecked, these trends can lead to gaps in coverage. As 2024 approaches, now is the time for industry to assess risks and fill any potential voids in insurance.

Economic inflation for example has changed property valuations, which can result in coverage gaps if policyholders have not examined their replacement costs recently.

Understanding Insurance To Value (ITV)

The best way to make sure a business is adequately insured is to know the property value. It is important for business owners to perform regular property valuation assessments, known as insurance-to-value, which can give business and property owners peace of mind after a loss. If there is a major loss, the coverage amounts in a business’ policy might not be enough to cover replacement costs at today’s prices. Having an accurate assessment of the complete cost to replace the insured property can be the difference between recovering quickly or incurring additional loss from delays in repairs.

Helping With Asset Valuation

Getting the valuation right is helpful for property owners to avoid coverage gaps when they experience a claim and maintain access to adequate protection. Due to inflation and supply chain challenges, construction materials such as lumber and drywall are more expensive than they were 24 months ago. An additional cost driver is skilled labor, which is in high demand but short supply. Added together, it costs more to repair or replace components following property damage. However, having an insurance agent or broker work with an experienced insurance company can help alleviate any complicated situations.

Protecting Business Property From Flooding

While most business owners buy flood coverage as part of a large business insurance plan, they should also have a flood emergency response plan to prepare for, respond to and recover from a flood. This plan should include details about an evacuation plan with employee responsibilities, sheltering-in-place procedures, medical emergency information, emergency response teams, and public emergency services and contractor contact information. 

It is also a good idea to have a Water Damage Prevention Plan (WDPP), which includes routine site inspections to identify uncontrolled water damage exposures and basic maintenance to make sure drains are clean of debris and diverting them to a catch basin or low point away from the building. An effective WDPP plan also incorporates technology as an invaluable component and includes backflow preventers on sewer connections and water sensing technology to monitor the most vulnerable exposures. In addition, a trained team of water damage responders should be recruited to map and label all zonal shut off control valves, as well as maintain an updated list of contractor’s contacts numbers for emergency purposes.

Navigating Cyber Liability

Cyber insurance should also be an important part of any company’s incident response plan to avoid gaps in liability, especially as 2024 which could be another active year of cybercrime activity. A holistic approach should be considered to provide insurance coverages that encompass data breach, ransomware, and business interruption. Threats to cybersecurity should always be taken seriously for the safety, security and stability of business operations. What makes The Hartford unique is its panel of Cyber First Responders that provides business customers with critical education and attention. Companies must prepare and have tactics ready to go in case of an incident because t any business can be attacked.  

Evaluating Multinational Exposures

It is also important to pay close attention to cues from business owners to uncover gaps in insurance and identify corresponding coverage needs. For example, is the company doing business internationally or does it have employees traveling overseas for work? Additionally, if it is not doing business internationally today, could that change in the future?

According to The Hartford’s research, nearly 80% of midsize businesses in the United States have some level of multinational exposure, yet nearly 40% of mid- to large-size businesses have never spoken with their agent or broker about their multinational risks. In addition, 68% of business owners surveyed are worried that they don’t have adequate coverage for their international operations. These concerns may be well founded. Domestic policies may not provide protection for multinational exposures, possibly leaving many mid- to large-size businesses in the United States uninsured, underinsured or improperly insured.

No matter how well-versed a business is in their policy, specific definitions and exclusions can be tricky to navigate.

About the Author:
Tracey Ant is head of Middle & Large Commercial Business at The Hartford. She has more than 25 years of insurance industry experience with a bachelor’s degree in finance from Hofstra University and master’s degree in business administration from Fairleigh Dickinson University. 

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