Commercial Insurance: What Retailers Need to Know When Shopping for Coverage

Commercial Insurance: What Retailers Need to Know When Shopping for Coverage

Ice cream truck, commercial insurance | Shopify Retail blogCommercial insurance is one of those terms that every retail business owner knows is important to understand. But when you get into the weeds, it becomes far more complex than any personal insurance coverage you’ve had to arrange.

So, what is commercial insurance? Commercial insurance is coverage that businesses can pay for to protect their company, employees, and company property.

Why Commercial Insurance Is Important

Let’s start out with a story: When I first started to write this article, I put a call out for retail business owners to share their experiences and lessons learned when it comes to commercial insurance. Here’s what Mark Aselstine, founder of Uncorked Ventures, shared:

“We're an online wine club. When we first opened, our warehouse was a 100-square-foot space in the corner of a larger construction business. It was an awesome setup — we got to piggyback on their office staff and had free WiFi and a bathroom to use.

At some point, there was a flood. The city where we were located put in a storm drain to stop the leaves from trees going into the bay. Unfortunately, that drain caused our warehouse and the larger construction business to flood.

We lost some wine. We thought it would be the perfect time to use the insurance we'd been paying for. But our policy said that the wider construction business would need to be part of the filing. They couldn't because their clients were cities themselves, and they didn't think it would be good for their business to file against a client.

So, we got stuck not being able to file when we needed to — despite having paid for insurance for a couple of years — because our policy wasn't written for a business as small as ours.”

Lesson learned? Not only can not having commercial insurance coverage be costly, but not having the right type of coverage can be just as costly — or even more.

You need to be incredibly specific with your situation when you have coverage designed,” says Aselstine. “Extremely specific.

Which Commercial Insurance Does Your Retail Business Need?

Commercial insurance for retailers | Shopify Retail blogWhen talking generally about commercial insurance for retailers, there are many different types of policies that cover both general and niche needs. As an overview, an article on Reuters.com lists the types of commercial insurance, a list which is still relevant today:

    1. Property insurance: Covers losses and damages to real and/or personal property.
    2. Boiler and machinery insurance: Also called “equipment breakdown” or “mechanical breakdown coverage,” this covers boilers, machinery, and equipment. Though it may seem irrelevant to retail, this includes computers.
    3. Debris removal insurance: Pays for removing debris after a devastating event, such as a fire or flood.
    4. Builder’s risk insurance: Covers buildings while they are being constructed. This is a good one to get if you’re building a new store.
    5. Glass insurance: Covers broken store windows and plate glass windows.
    6. Inland marine insurance: Covers property in transit and other people’s belongings on your property.
    7. Business interruption insurance: Covers lost income and expenses resulting from property damage or loss (i.e. you can’t operate your business for a period of time).
    8. Ordinance or law insurance: Covers expenses related to demolishing and rebuilding to code when your building has been partially destroyed.
    9. Tenant’s insurance: If you rent your store location, tenant’s insurance (or renter’s insurance) covers damages to improvements you make to your rental space and damages caused by employee negligence.
    10. Crime insurance: Covers theft, burglary, and robbery from both employees and external sources.
    11. Fidelity bonds: Covers losses due to a bonded employee’s theft.
    12. Liability insurance: Covers injuries that you or your property cause to third parties.
    13. Errors and omissions insurance: “E&O” covers mistakes or failures that cause injury to a third party. “The act must actually be an inadvertent error, and not merely poor judgment or intentional acts.”
    14. Automobile insurance: Covers cars, vans, trucks and trailers used for your business.
    15. Workers’ compensation insurance: Covers employees’ on-the-job injuries. This commercial insurance is often required by law.

And a few additions:

    1. Commercial umbrella insurance: Extends the coverage provided by your other policies.
    2. Cyber liability insurance: Covers losses from cyber attacks and data breaches. (62% of cyber attack victims are small and mid-sized businesses.) “If your POS system is compromised just notifying all your customers is a cost that could sink the ship,” says Dave Zappacosta, principal agent at Bridge First Insurance.

And FitSmallBusiness.com lists some of the most common retail commercial insurance types and estimated costs:

FitSmallBusiness commercial insurance costs | Shopify Retail blogThey also list the average annual costs by retail store type:

  • General merchandise store: $760
  • Clothing store: $855
  • Flower shops: $855
  • E-cigarette/vape shop: $890
  • Grocery store: $1,100
  • Jewelry store: $1,160

Your price will depend on a number of variables.

“The factors that determine your insurance pricing are your business type, location, amount of business you do, history of insurance claims and the amount of insurance you purchase,” says Matthew A. Struck, partner at Treadstone Risk Management.

That’s a lot to consider, and not every type of coverage is needed for every type of retailer. Some coverage is legally mandated, while other policies are optional.

“Depending upon the state you operate in, most businesses legally need to have general liability and workers' compensation,” says Walt Capell, president and owner of Workers Compensation Shop.

It also depends on how you operate your business.

“If employees are driving a company-owned vehicle, the business will need commercial auto insurance,” he explains. “If the employees are driving their personal vehicles, the business is liable for accidents caused by the employee while using their vehicle for work. This can be covered with hired and non-owned auto insurance.”

And when it comes to how and where you sell your products, there are differences for brick-and-mortar, pop-up shops, and event selling. Let’s break it down:

Brick-and-Mortar Store Commercial Insurance

Your brick-and-mortar store commercial insurance checklist:

  • Business interruption
  • Liability
  • Property
  • Crime (make sure it covers employee theft)
  • Cyber liability (find a policy that includes first- and third-party loss)

When it comes to commercial insurance for your physical retail store, the biggest difference in your approach will depend on whether you lease or own the building, says Zappacosta.

“You either need to insure the building because you own it, or most leases have a built-in insurance requirement and may require more insurance than necessary.”

There are different policies that cover each scenario.

While your space may be one of your most valuable assets, the lifeline of your biz is your product.

“The biggest concern for most [store] owners would be their inventory, especially in a store,” says Zappacosta. “You want to make sure you know your numbers and purchase the correct amount of business personal property coverage.”

Related:

Insurance coverage and rates are also dependent on your merchandise.

“You’ll definitely be assessed on the actual product you sell,” he says. “Your actual product will help the insurance company assign a risk factor to your industry.”

Beyond that, Zappacosta explains, agents will “rate” your risk factor based off a number of considerations, including but not limited to sales revenue, payroll, square footage, and number of employees.

PRO TIP: “We like to work with companies that use square footage or number of employees because your insurance premiums don't increase when you do better as a business owner,” Zappacosta says.

Pop-Up Shop Commercial Insurance

Your pop-up commercial insurance checklist:

  • Business interruption
  • Liability
  • Property
  • Crime (make sure it covers employee theft)
  • Cyber liability (find a policy that includes first- and third-party loss)
  • Inland marine (maybe)

Remember how protecting your product is one of the most important considerations when shopping for commercial insurance? If you open a pop-up shop, that coverage doesn’t always carry over.

“For pop-ups, your inventory isn't automatically covered,” says Zappacosta. “Most business personal property coverage has a restriction of 1,500 feet within the main premises.”

The location of the pop-up, as well as means of travel and who’s working it, determine what types of additional commercial insurance are needed.

“If you’re traveling with your inventory, then you need to purchase an inland marine policy which covers business personal property away from the premises,” Zappacosta says. “Most policies will have a small amount built in, but if you’re regularly with $5,000+ worth of inventory at an off-premises location, you need the inland marine coverage.”

Event Sales Commercial Insurance

Your event sales commercial insurance checklist:

  • Vendor liability
  • Property
  • Crime
  • Inland marine (maybe)

If you sell at trade shows, festivals, markets and other events, you might be covered by the event host or venue.

“Offline selling at trade shows [may] use the insurance provided by the venue, as they're liable for situations that occur on their property,” says Vince Lefton, CEO of Bulldog Adjusters. Remember to always do your homework and check out your unique situation.

Again, because you’re traveling and not selling at your primary location, coverage may not translate over. The same advice about inland marine insurance applies, and vendor liability insurance is another area to look into, according to Struck. You can choose short-term coverage periods to accommodate your event schedule.

How to Get Commercial Insurance for Your Retail Business

Now that we have a rough idea of the types of insurance you’ll need (remember: always do research for your unique circumstances), the next step is to get it. Capell recommends finding an insurance agent you can trust and having an in-depth conversation about your business needs.

“Work with an independent agent who can quote multiple insurers and play them against each other to get the best possible value (coverage + price),” recommends Struck.

You’ll also want an agent who can “provide risk management advice to help prevent claims from happening to make your business a more attractive one to insure and drop future insurance costs.”

Capell agrees that working with an independent agent will help retailers get the best coverage and value.

They can shop your policy around to multiple carriers, and they also have the knowledge about which carriers are actively looking to quote the coverages you’re looking for,” he says. “This can help you get bigger discounts.

Commercial Insurance Providers

It’s best to shop around for the best policy. Here are some commercial insurance providers that you can explore:

Choosing Your Policy

Once you’ve gotten your quotes, you’ll need to compare policies and choose to best one.

“Business owners considering insurance quotes need to consider exclusions and limitations when deciding on an insurance policy,” advises Lefton.

“A good agent isn’t going to recommend coverage unless your business is truly at risk,” says Capell. “Insurance agents interact with people who are filing a claim on a daily basis. They know what it feels like for a business owner to have a fire or some other disaster and not have enough insurance coverage. When they recommend additional coverage, it’s usually because of one of these experiences.”

Commercial Insurance Tips

Remember to never undervalue your inventory in hopes of getting a better deal.

“Insurance companies usually have endorsements that say if you were knowingly underinsuring they can partially deny claims,” says Zappacosta. “Look for insurance companies that will base your liability off square footage and number of employees rather than sales and payroll.”

Once you have your policy in place, you’ll want to make sure you’re making the best use of it — and that you stay protected.

“Confirm with your insurance company that they received the premium so that you know that your coverage has started,” says Lefton. “And don’t let your policy lapse.”

Which commercial insurance policies do you have? Have you ever had to use them?

Photo of Alexandra Sheehan

About the Author

Alexandra Sheehan is a freelance writer/editor and content specialist. She’s worked with retailers ranging from Fortune 100 companies to Etsy shop owners, and is always looking for innovative ways to help her clients.

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