By definition Insurance is "a practice or arrangement by which a company provides a guarantee of compensation for specified loss or damage, in return for payment of a premium". Laundromat Insurance is one of those items you wrestle with once a year and then forget. I researched my insurance options about 10 years ago and then every year after that, the premium either goes up (usually) or down and I (by auto-pilot) just renew for another year.
I sat down last week with Bob Kirkwood my insurance agent for the last 20 years and we discussed on video all sorts of different aspects of Laundromat insurance. In the next couple of newsletters I thought I would discuss Insurance for Laundromats as a tutorial for myself and everyone else. I will discuss the many different types of insurance and what coverage to have to fully protect you and your Laundromat. I guarantee you that I learned information that has me re-thinking about my insurance coverage and also when to submit an insurance claim.
Insurance is designed for the catastrophic disaster which under normal situations would wipe out your business. Such disasters could be a major fire in your Laundromat or a flood that fills your store with 5 feet of water. Such losses involve replacing a lot of very expensive laundry equipment and major construction work such as carpentry, gas work, venting, HVAC, and electrical work. All of these involve expensive labor and expensive materials. In most cases building permits have to be secured and the entire Laundromat brought up to current building codes. Some of the un-anticipated expenses could be making your undersized bathroom into a handicap bathroom to comply with current ADA building codes (even if you don't allow the public to use your bathroom) or widening your doorways. All of this can be hugely expensive and also take considerable time to put all the pieces together to re-build your Laundromat.
Insurance is designed for the "business killing" event that would normally bankrupt a business. These are the catastrophic events that insurance will give your Laundromat a second chance. If insurance is designed for the business-killing catastrophic loss, small claims should be covered with a much smaller reserve fund. Insurance by design and price structure is not designed for the nuisance vandalism or single pocket dryer fire. These small claims should be handled by your general reserve fund. Over the long haul, if you submit too many small claims to your insurance company, they will just refuse to renew your insurance policy. Once that happens, then you are scrambling for coverage and are at the mercy of the insurance companies.
I have been guilty of frequent insurance claims. We had a dryer fire in one of my Laundromats and after paying for the plumbers, the electricians and a new dryer; that my total cost was higher than my $5K deductible. I had total expenses of about $15k and I submitted a claim to my insurance agency. They paid the bill and everyone was happy. Two years later I had a customer flip-out, after hours, in my Laundromat, throw trash all around the store and he also destroyed the cameras to my surveillance system (but only after we had evidence of him on tape). Again this was about a $15k claim and we ran it through my insurance company. The same insurance company paid up without a problem, but they refused to renew my policy the next year. Of course I was surprised, but I have a short memory, but obviously my insurance company did not.
Insurance companies keep an internal report card on all of their clients and when the dollar value or the frequency of the claims become higher than what they expect, they cut their losses and decide not to renew your policy. In talking to Bob Kirkwood, my insurance agent, he says that the frequency of the claims (rather than the dollar amount) is the biggest factor in non-renewals of insurance policies. The increased frequency is an indicator that there is a good chance that a loss will come again and this time instead of a small or moderate loss that the loss could be a whopper. The insurance company are in the business to reduce claims so if they view you as a high risk, they will just not insure you. Insurance companies are continuously ranking all of their customers and the riskier business just does not get renewals.
Instead of submitting every claim, I am thinking about going with a higher deductible and covering the frequent smaller claims out of my reserve funds and saving the insurance claim for the "business killing" event. So before you call you agent with the small losses year after year, budget some money in your reserve funds to handle these costs out of your own pocket and keep the insurance policy for when you really (really) need the coverage. If you do this correctly, you can save some premium money with a higher deductible that then could go to help supply your reserve fund.
The benefits of have a long term relationship with your insurance company is steady predictable rates and peace of mind that you are adequately covered in case of a major, catastrophic loss. By properly managing some of the risk and losses yourself, you can maximize your coverage. So if and when a catastrophic loss does occur that you have the resources to bring your Laundromat back from a business killing event. More insurance knowledge to come...