What Claims Pros Must Know About Small Businesses’ Insurance Blind Spots

Small businesses are the backbone of the U.S. economy, but many are unknowingly underinsured—often discovering gaps only when a claim is denied.

According to the U.S. Small Business Administration, roughly one-third of businesses don’t have insurance and three-fourths are underinsured, leaving them exposed to risks that could financially devastate their operations. Between March 2021 and March 2022, 917,825 U.S. businesses closed, with small businesses accounting for 833,979 of those closures, according to the SBA.

For claims professionals, this isn’t just a statistic—it can be a daily reality. Business owners file claims expecting coverage, only to discover critical gaps. When this happens, it doesn’t just create frustration; it can strain client relationships, lead to disputes and result in significant financial losses.

Understanding these blind spots is essential. While claims professionals don’t write policies, they are on the front lines of helping customers understand their risk and the overall claims process. Identifying common coverage gaps, educating business owners at key moments, and collaborating with agents may help prevent future costly denials before they occur and foster long-lasting, positive customer relationships.

Common Overlooked Risks

Many small business owners assume that a basic general liability policy is enough. The reality? It often only covers a fraction of their actual risk. Some of the most common blind spots include:

• Who Needs Workers’ Compensation? – Some businesses assume they don’t need workers’ comp insurance until they reach a certain number of employees, but state laws vary widely. Even a single workplace injury without proper coverage can lead to costly medical expenses, legal fees and fines. Understanding state-specific requirements is essential to protecting both employees and the business.
• What Workers’ Comp Really Covers – Some business owners assume workers’ comp only covers medical bills, but it also helps with lost wages, rehabilitation costs and even employer liability in some cases. Not understanding the full scope of coverage can leave both employees and businesses financially vulnerable.
• Business Auto Insurance Gaps – Business owners often assume personal auto policies cover business use, only to discover after an accident that their claims are denied.

The Impact of Coverage Gaps on Claims & Small Businesses

When working with customers, the challenge for claims professionals isn’t just processing claims—it’s managing expectations when gaps lead to uncovered losses. A denied claim due to insufficient coverage can cause:

• Significant financial strain, resulting in businesses needing to pay out-of-pocket for damages.
• Increased disputes and dissatisfaction, damaging relationships with insurers and brokers.
• Operational setbacks, especially if a business lacks the resources to recover from an unexpected loss.

Even when claims are approved, delays caused by coverage misunderstandings or lack of awareness around the claims process can disrupt business operations. Given that SBA data show that small businesses contribute 70% of net job growth in the U.S., ensuring they are properly insured is essential for long-term stability and economic growth.

How Claims Professionals Can Support Small Business Customers

Claims professionals play an important role in the coverage journey for small business owners and can help identify risks and improve client outcomes. Three opportunities for claims professionals include:

1. Spotting Gaps in Real Time – During the claims process, flag coverage shortfalls and communicate them clearly to both the insured and brokers. This can prevent repeat issues and help businesses adjust their coverage before another loss occurs.
2. Educating at the Right Moment – When a claim is denied or only partially covered, use the opportunity to explain why. Business owners are far more receptive to learning about gaps when they’ve experienced them firsthand.
3. Collaborating with Agents and Underwriters – When recurring coverage gaps appear in claims, share insights with underwriting and partner agent teams. This can lead to better policy recommendations and reduced future claim denials.

Closing the Gaps

Claims professionals are more than just processors of claims—they play a critical role in reducing financial risk for small businesses. Accidents, natural disasters and lawsuits could potentially run small businesses out of operation if they lack proper insurance protection. The more we recognize and address coverage shortfalls, the better we can prevent costly surprises, strengthen client relationships and create a more resilient insurance landscape.

For small businesses, an uncovered claim can mean the difference between recovery and closure. By proactively identifying blind spots and working with agents to address them, claims professionals help protect both their clients and the industry at large.

Woodard is a senior vice president of claims at Pie Insurance.