A CEO asked me during a board meeting whether he should drop his business liability insurance to save cash. His exact words: “What are the actual odds we’ll ever need it?” I had personal experience relating to his question and wanted to share it. But first…
I quickly found online a photo of a building one of his competitors used to own. Past tense.
Here’s the uncomfortable truth about going “naked” without corporate insurance: the statistics aren’t on your side, and the math is brutal.
Business insurance feels expensive until you calculate the alternative. A typical business package policy costs about $4,000 annually for a small company. That same coverage protects against events that could cost you everything.
I’ve seen good businesses destroyed not by bad strategies or poor execution, but by failure to insure against calamities they never saw coming. A slip and fall. A data breach. A fire. Product liability. Employee discrimination claims.
[Email readers, continue here…] Here’s what most CEOs miss: they’re not betting on probability. They’re betting their entire business on a single dice roll.
Personal case number one:
Let me give you the math that changed my mind decades ago. My software company filed a business interruption claim after a catastrophic data loss cost us weeks of programmer time recovering work. The insurance company paid $108,000 to settle the claim. In 1987 dollars. That’s $300,000 in today’s money.
The annual premium? About what we spent on office coffee.
But the real cost of going naked isn’t just the payout you’d have to cover yourself. It’s what happens to your business while you’re trying to recover. A $500,000 liability claim doesn’t just drain your bank account. It forces you to cut staff, delay product launches, lose customers, and watch competitors gain ground while you’re scrambling to survive.
Every entrepreneur wants to believe they’re too careful, too smart, too well-run to need insurance. That’s exactly what every CEO whose business burned down also believed.
The companies that go naked and survive aren’t smarter. They’re luckier. And luck isn’t a business strategy.
Comprehensive coverage including premises liability, product liability, business interruption, and insurance transfers catastrophic risk to someone else’s balance sheet. That’s not an expense. That’s protection for everything you’ve built.
Personal case number two:
I now insist on D&O insurance for every board I sit on after being sued as a director five times over twenty-five years. I won for and settled the fifth because “they” sued my wife as well, even though she had nothing to do with the company – and I obviously didn’t want her to appear in court. The attorney informed me that it would cost a quarter million dollars just to get in front of the judge for the first time to dismiss the spurious case, let alone dismiss my spouse.
Even spurious suits cost tens of thousands to defend. Without insurance, that comes out of your pocket.
Entrepreneurs who tell you insurance is a waste because they’ve never needed it are committing the same logical fallacy as someone who doesn’t wear a seatbelt because they’ve never been in an accident.
Until they are.
Going insurance-naked isn’t a calculated risk. It’s risking everything you’ve built on the assumption that you’ll be the exception to probability.
Insurance is expensive. Rebuilding from catastrophic loss without it is impossible.
My two cents – “You only need it when you need it!” Short story – 1993 and luckily we had taken out “loss of use” with our policy. We had a small gang of criminals walk in to the building, poke up the ceiling tile outside of our office, climb through the ceiling, drop inside, open the door and then the proceeded to steal all RAM and hard disks (valuable back in the day) and leave the carcasses in the big open area. Insult to injury – they ate most of our snacks while they were doing it. Just like that, we had 30 consultants that could not do work or bill hours for about 4 days (which was a lot of money at the time). Luckily, our broker had painted the “ugly picture” to us and we had the insurance and were able to get the time covered (with a little arm wrestling with the insurance company). Big fan of being well insured across the board.