Over the past couple of years, small businesses have been through the ringer. With so much unprecedented turmoil from a global pandemic, economic decline, and inflation affecting businesses, it’s important that SMBs take steps to protect themselves from preventable risks.

In 2020, a survey found 3 in 4 small businesses experienced an event that could have led to an insurance claim. With the average small business insurance settlement coming in at $75,000, businesses need to engage in proper risk management to avoid unnecessary financial burden. To help business owners gain awareness of the risks that may come their way, we’ve outlined five of the most disastrous small business claims and tips to prevent them.


1. Reputational Harm

When it comes to small business claims, reputational harm is a claim that can do major damage to your business. Examples of reputational harm include any instances of slander, libel, or violations of privacy. 

If a claim of this magnitude is brought against your business, it can cost your business an average of $50,000 per claim. Not only can it hurt you financially, but your business’ reputation may also take a hit. This can result in loss of business if others do not want to work with you or buy from you. 

Tip to avoid a reputational harm claim: If you have criticism of competitors, it’s best to share your thoughts in private and off-the-record. Posting negative or harsh criticism online, in print or saying it publicly can give someone the grounds to claim libel or slander, so it's in your best interest to only share internally. 


2. Vehicular Accidents

If your business owns a company car or your employees drive around for work, there’s a chance that you may get in a car accident. Typically your commercial auto insurance will provide some level of coverage in this situation, but claims can cost $45,000 or more. If your policy has a limit that only covers some of this amount, it can leave your business in the hole. 

Tip to avoid a vehicular accident claim: Only hire employees with good safe driving reports and offer safe driving training to ensure they practice proper safety on the road. 


3. Fire Damage 

Accidental fires can cause damages to your place of business and any equipment inside. It also poses a threat to any employees or customers that may be around when the fire occurs. These damages are expensive to repair, with claims often costing around $35,000. It’s important to have good fire safety systems in place to prevent fire damage from happening to your business.

​​Tip to avoid a fire damage claim: Make sure that employees participate in routine fire safety drills and that any fire detection or suppressant equipment is tested regularly. 


4. Product Liability

A product liability claim is another disastrous claim that can hurt your small business. These claims usually arise when a defective product causes personal injury or property damage to consumers and typically cost around $35,000 per claim. At this price, if you even have just a few defective products that cause problems, it could mean financial ruin for your business.

​​Tip to avoid a product liability claim: Always run products through strict quality checks to ensure compliance with industry safety standards.


5. Injury or Damage to Customers

Accidents happen in life, but when they cause injury to your customers or property damage, it can spell trouble for your small business. Examples of events that can lead to this type of claim include if someone slips and falls on your business premises or if a customer gets burned from the spill of a hot liquid. These claims can cost you around $30,000, so you’ll want to make sure you prevent them.

​​Tip to avoid a customer injury or damage claim: Remember to post warnings on products and equipment that may cause injuries. Additionally, warnings should be left in potentially dangerous locations like before stairs or around low-hanging ceilings. 

Knowing about the most disastrous claims that could happen to your small business is the first step to mitigating the risks they pose to your business. Use our risk management tips to protect your business, employees, and customers so that you don’t need to deal with an expensive claim. For more information, check out the infographic from The Zebra below.


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Pia is a writer and content marketer with an M.A. in Communication. She specializes in writing for the business, insurance, personal finance, technology, and lifestyle industries. Through her writing, she aims to inform and inspire everyday audiences.