Fire causes 1 in 10 small business insurance claims. How safe are you?

Insureon Staff.
By Insureon Staff
March 3, 2016
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Fire is among the most frequent and most expensive insurance claims for small businesses. Small businesses should carefully review their coverage to minimize the potential damage.
Fire across a black background.

Last year, small business insurance carrier The Hartford published a study ranking the top 10 claims it processed by frequency and cost. Perhaps unsurprisingly, fire was at the top of both lists, clocking in at number three for most expensive and number four for most frequent.

While fire remains one of the more destructive forces small businesses may have to deal with, the good news is that standard commercial property insurance policies usually cover damages caused by fire. Read on for tips on minimizing your odds of damage and maximizing your odds of recovery in the event of a worst-case scenario.

Small business insurance policies for dealing with fire damage

To prepare your business to weather a fire damage claim, consider these three small business insurance policies:

Commercial property insurance: Following a fire in your place of business, a commercial property policy can help pay for replacing or repairing your equipment, supplies, and the building itself. This coverage is typically budget-friendly because it’s available at different levels. You can insure your business at its replacement value (what it would cost to replace everything with brand-new items) or its actual cash value (what it would cost to replace everything with used equivalents to what you have now).

Business owner’s policy: For the truly budget-conscious, the business owner’s policy (BOP) offers further savings on property insurance by bundling it with general liability insurance. These two policies are more or less essential for any small business, and a BOP is usually the most cost-effective way to purchase them. BOPs aren’t available to everyone (they’re partly based on risk exposure), but be sure to ask your agent whether you qualify.

Business interruption insurance: This gem of a policy is available as a rider to a commercial property insurance policy. In the event of a fire (or other covered property event) that forces you to completely shut your doors, it can offer payments to cover rent at a new location, salaries for your employees while you’re unable to operate, and other ongoing expenses: taxes, loan payments, and more. Think of it as a bridge policy: its benefits can keep you above water between the time the fire happens and the time you’re able to rebuild and reopen.

Reducing the risk of fire damage at your business

While certain behaviors or circumstances increase a business’s risk of fire damage, fires can affect anyone. Shorted electricity and lightning strikes, for example, can happen no matter what kind of business you operate. Luckily, there are some preventive measures anyone can take to minimize the chances of fire damage.

  • Make sure your fire extinguishers are regularly inspected and maintained according to local fire code.
  • Train employees in proper use of fire extinguishers.
  • If you own a restaurant, make sure you have a UL 300-compliant wet chemical fire suppression system and follow the NFPA 96 standard for ventilation and fire protection.
  • Keep commercial cooking and manufacturing equipment clean. This may mean hiring a third-party cleaning contractor to make sure it doesn’t get put off indefinitely.
  • Ban risky electrical appliances (like space heaters) and keep others (coffeemakers, toasters, etc.) away from paper and other flammables.
  • Always maintain two exits. Keep emergency exit doors open and accessible.
  • If you’re in a part of the country where wildfires happen, trim brush and trees near your building.

For more information on how to keep your business safe from fires of all kinds, follow the National Fire Protection Association on Twitter (@NFPA) and check out its online safety tip sheets. If you’re in the western part of the country, you may also want to check out "Protect your home, property, and forest from wildfire," a guide published by Colorado State University.

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