Insurance Options: Know Your Financial Risks

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Every retailer has to protect themselves against risk. You surely knew that before you opened your store.

But most retailers have little or no inventory that’s actually alive, and as such has the capacity to suffer, or the potential to be injured or killed. If you sell plates and some of them get broken, you might be able to get some insurance money to replace the plates. If you sell dogs, fish or birds and some of them get injured or killed, you’ve got some more complicated issues to deal with.

How does that impact your risk management strategies? Obviously you need general liability insurance and worker’s compensation insurance. Every retailer does. And depending where you operate, you need to consider things like flood insurance. In some locations you don’t need it; in some locations the risk is so great that you can’t get it. Make sure you know which situation applies to you.

But what about needs specific to the pet retail industry? Here are a few things to keep in mind as you seek to protect yourself comprehensively, and also wisely:

You can insure your animals as general property, meaning you can put in a claim for their value if they die while in the store as part of your inventory. But you need to know the exceptions that apply, and there will be exceptions.

For example, if the animals die as the result of a problem you could or should have been prepared for, you may not be successful in filing a claim. A power outage that shuts off the pumps in your fish tank, for example, could result in the insurer telling you that you should have had backup power. If animals become sick or die because of the climate in your facility, the insurer may very well say you’re not covered.

It’s going to be different with every policy and every insurer, but the key is to examine the specifics very carefully before you take out a policy. Make sure you know exactly what the insurer considers you responsible for, and ask lots of questions about specific scenarios.

Another thing you should ask about is protection against claims by customers who could be harmed by the animals in your inventory.

I know. People should know better than to blindly touch a dog, cat or snake that can cause them harm. These people are adults and they should know these things. You might have even put a sign up telling customers that they shouldn’t touch the animals and that you’re not responsible if they do.

People are litigious. There’s a lawyer in your town who has his picture on a 50-foot-high billboard and he sues business owners like you over things like this. It’s obnoxious and absurd, but even if these are mere nuisance suits and you’re unlikely to lose them, you will still have to spend time and money responding to the legal papers someone decides to serve you.

At the very least, talk to your insurer about what if any coverage might be available for such situations and what would be required of you to qualify for it.

Needless to say, that goes for your employees, too, although you should have basic workers’ compensation coverage for them. The key is to make sure that all the types of coverage you have cover every potential problem that’s unique to running a pet shop.

There are additional kinds of coverage you can pursue if the conventional ones don’t cover you as much as you believe is necessary. Spoilage insurance might augment the protection you need in the event you lose some of your live animals. Inland marine insurance could be used to give you some additional coverage when it comes to fish or other marine life. As always, of course, you need to make sure you understand what the insurer expects of you so you don’t end up filing claims only to be told you weren’t really covered.

There’s also another question you need to consider with any form of insurance: Does the severity of the risk justify the cost of protecting yourself against it?

Let’s make the proposition really simple: If you had a car worth $5,000, would you pay $500 a month for collision insurance? Of course you wouldn’t. The cost of the premiums over the course of a single year would exceed what it would cost you to simply replace the car if it was totaled. You’d be better off stashing away $500 a month in a savings account, and then using it to replace your car if it ever became necessary.

Or if you’ve already got $5,000 sitting in a savings account, just drive carefully!

The same principle applies with any type of insurance. There are some types you’re legally required to buy, like auto liability, but there are others where it’s your choice whether to invest in the protection. If there’s a risk you’re looking at, how much would it harm you if you had to absorb the full cost of the worst-case scenario? And how would that cost compare to the cost of insuring against the loss?

I’m not telling you to go without insurance protection. That’s reckless and dumb. What I am saying is that true management of risk means understanding how much risk you can handle. In addition, it’s wise to take advantage of insurance to protect you against risk that you can’t handle.

What is the value of those assets you might lose? Could you absorb that loss? No? Then insure against it. Yes, but you’d rather not?

It is vitally important to weigh the cost of insurance premiums against the worst-case scenario.  This will enable you to ensure you’re not giving your money to an insurer without really being better off. You should certainly have insurance to protect your business, but before you just go ahead and buy the maximum coverage on every conceivable type of policy, just in case, make sure you’re not jacking your overhead so severely that you’ve baked in the losses before anything was actually lost.

Unexpected losses are damaging, but out-of-control overhead can kill you, too. This is why you get the big bucks! If you have any left, that is.