Here Are Three Key Insurance Coverages to Keep Your Eyes on During Today’s Challenging Market Conditions
The last few years have been challenging both for businesses and the insurance industry. After years of stability, a confluence of factors has led insurance companies to reevaluate their positions in the market.
The increased frequency and severity of claims, social inflation, the COVID-19 pandemic, medical inflation, trends in cybercrime, the cost of reinsurance, natural disasters and investment returns have all fundamentally reshaped the insurance market as we know it.
Key Causes of Inflation
Several factors have contributed to rising inflation concerns – namely, widespread labor shortages and supply chain disruptions amid the ongoing COVID-19 pandemic. Here’s a breakdown of these factors:
Labor shortages – The past year has seen labor shortages in nearly all sectors. In fact, a recent study from the Society for Human Resource Management found that nearly 90 percent of businesses are having a hard time filling open positions.
There are various reasons for these widespread labor shortages. Primarily, the impact of the pandemic has caused many workers to reevaluate their employment priorities and has made unemployed individuals apprehensive about returning to the workforce. In fact, the proportion of people who have been out of work for six months or longer is at its highest point in 60 years.
These labor shortages have led to substantial struggles for businesses, often causing production or project delays, and forcing some employers to increase their salary offerings to retain or attract workers. Ultimately, such trends have ramped up overall labor costs and created subsequent inflation concerns.
Supply chain disruptions – Since the initial onset of the pandemic, a range of supply chain disruptions has taken place. The majority of these issues stemmed from increased demand for various items and materials amid a slowdown in production and lack of availability during pandemic-related closures.
Even as businesses have resumed their normal operations and increased production levels, consumer demand for certain items and materials has continued to outpace inventory. This is likely attributed to a greater number of consumers making large purchases from accumulated savings throughout the pandemic.
In response to these supply chain concerns, the cost of many items and materials across industry lines have soared to help offset demand, thus contributing to inflation issues. And these issues could create a number of challenges in the commercial insurance market, impacting both insurers and their policyholders.
With this in mind, it’s crucial for laundromat owners to have a clear understanding of inflation and to take steps to ensure adequate coverage during these difficult market conditions.
Let’s take a closer look at some specific lines of coverage that are most at risk of being affected by rising inflation:
Business Personal Property
BPP covers your business’ contents, including the equipment. The main consideration is to insure the BPP for replacement cost, not the cost at which you purchased the equipment.
Clearly, BPP needs to include coverage for more than just your equipment. All of your laundromat’s contents – such as electronics, furniture, card systems, etc. – should be included.
One of the most common mistakes I run across with new investors is insuring just their loan amount and not taking into consideration everything else within the store. CLA Insurance will insist you insure your business personal property at full replacement cost. This means the cost to replace all your equipment and other property brand new in the current market.
Leasehold Improvements
Also known as Tenants’ Improvements and Betterments, this coverage will assist in building out your location to be a suitable laundromat again. In the event of a total loss, the landlord’s building insurance is responsible to replace the building, but it would not be responsible for replacing specialized plumbing and electrical requirements needed to run a laundromat.
Whether you’ve built out your own laundromat or previous owners have built out the store, you should look to include this coverage to help assist you in rebuilding your laundry facility in the event of a total loss.
Some carriers will allow the use of the BPP limit to assist in some of these costs, but in today’s market, it’s likely that the BPP limit would have already been exhausted replacing your equipment in a total loss.
Building Coverage
If you own the building, be sure to have this coverage included on the policy and insured to replacement cost, just as you would with the BPP. Beware of coinsurance provisions on buildings, as well as your business personal property. If your building and/or business personal property are not insured to replacement cost value and you have a claim, you could end up paying a portion of the loss.
Fortunately, you don’t need to go it alone. To help you navigate today’s insurance market, you need an insurance professional who understands your business, helps you plan for unique risks and advocates on your behalf.
Also, you need an insurance professional who can tell your story to insurance carriers in a way that will best position your laundry business come renewal time. And, lastly, you need to work with an insurance professional who understands the dynamics of the current insurance market cycle and how to navigate a hard market successfully.
Alex Dolan is an account executive at CLA Insurance, which is the largest laundry insurance program in the United States. CLA Insurance has been providing coverage to Coin Laundry Association members for 34 years, and offers comprehensive property and liability insurance tailored to the specific needs of your laundry facility. You can reach Alex at (847) 427-3471 or (630) 207-3961, or email [email protected].
