For many businesses, inventory represents a major portion of total assets. Whether you run a retail store, a warehouse, a contractor supply yard, or a small manufacturer, those shelves, pallets, and storage rooms are essentially cash in another form.
That makes inventory a prime target for two major threats: theft and natural disasters. A single break in or storm can wipe out weeks or months of profit if you are not prepared.
Managing risk is a fundamental part of running a successful company. While you cannot predict every outcome, you can implement a strategy that combines physical security measures with a robust insurance portfolio.
Start With the Basics: Know What You Have
You cannot protect what you cannot track. Accurate records are the foundation for both risk management and insurance claims.
Consider these practices:
- Keep an up-to-date inventory list that includes quantities, SKUs, descriptions, and approximate values
- Store digital copies of purchase orders, invoices, and inventory reports offsite or in the cloud
- Take periodic photos or videos of storage areas and high value items
- Perform regular cycle counts or full inventory counts, not just once per year
In a claim situation, your insurer will ask for documentation. Having organized records helps speed up the process and increases the likelihood you receive the full amount you are owed.
Reducing Theft Risk with Practical Security
Strong security does more than deter criminals. It can also help your insurance costs and demonstrate that you’re a responsible business owner.
Areas to address:
Physical Security
- Use solid exterior doors with commercial grade locks
- Secure windows, loading docks, and rear entrances
- Keep outdoor storage areas well-lit and, where possible, fenced
- Restrict access to stockrooms and warehouses to authorized staff
Technology and Monitoring
- Install security cameras that clearly cover entrances, exits, and inventory areas
- Use alarm systems with monitored access and motion detection
- Consider access control systems for higher value areas
Internal Controls
Theft is not always from outside. Internal shrinkage and employee theft can be just as damaging.
Helpful practices include:
- Segregating duties for ordering, receiving, and inventory adjustments
- Limiting who can authorize write offs and adjustments
- Requiring sign out procedures for high value items
- Conducting random inventory spot checks
Commercial crime and employee dishonesty coverage can help if the worst happens, but strong controls reduce the odds you’ll need to use it.
Guarding Inventory Against Fire, Storms, And Water Damage
Natural disasters and accidents can cause large inventory losses in a matter of minutes. While you cannot control the weather, you can reduce your exposure.
Fire Safety
- Keep fire extinguishers accessible and serviced regularly
- Store flammable materials properly and away from general inventory
- Make sure electrical systems are up to code and not overloaded
- Keep aisles clear so sprinklers and fire crews can access all areas
Storm and Wind Protection
- Anchor shelving and racking systems to floors and walls where appropriate
- Avoid stacking heavy items too high where they could topple in strong winds
- For locations in storm prone areas, review roof condition and drainage systems
Water and Flood Risk
- Water damage often comes from inside the building as well as outside.
- Inspect plumbing and roof lines regularly for leaks
- Avoid storing valuable inventory directly on floors, especially in basements
- Use pallets or shelving to elevate products
Know your flood zone status, since standard commercial property policies typically do not cover flooding from rising water
If you’re in an area prone to flooding, separate flood insurance may be essential to protect inventory.
Insurance Coverages That Protect Your Inventory
Even with excellent security and prevention, losses can happen. This is where the right insurance structure becomes critical.
Commercial Property Insurance
Standard commercial property policies typically cover inventory against covered perils such as fire, theft, certain types of water damage, and some storm events.
Important details to review:
- Coverage limits are high enough to reflect current inventory values, not last year’s
- Coverage is written on replacement cost rather than actual cash value when possible
- Deductibles are at levels your business can realistically handle
If your inventory fluctuates significantly during peak seasons, ask about peak season coverage or seasonal increase endorsements so you’re not underinsured during your busiest months.
Business Income and Extra Expense Coverage
If a disaster destroys your inventory, you may lose the ability to generate revenue while you restock. Business income coverage helps replace lost income during that downtime, while extra expense coverage helps pay for temporary measures such as relocating operations or expediting new inventory shipments.
Inland Marine and Off Premises Coverage
If you keep inventory at multiple locations, in transit, or on job sites, standard property coverage may not automatically extend to all of those situations. Inland marine or specialized off premises coverage can protect:
- Goods in transit between locations
- Inventory stored at third party warehouses
- Equipment and materials kept at job sites
- Commercial Crime and Employee Dishonesty Coverage
This type of coverage helps protect your business if an employee steals inventory, cash, or other property. It can also address certain types of fraud and forgery, subject to policy terms.
Building A Practical Inventory Protection Plan
A strong inventory protection approach combines prevention, documentation, and coverage.
Consider this framework:
- Document what you have and where it’s stored
- Strengthen physical and internal security
- Address fire, storm, and water risks through maintenance and layout
- Review your insurance policies with an agent who understands your business
- Update your plan as your inventory and operations change
Businesses grow, storage methods and product mixes change. A plan that fit perfectly three years ago may leave gaps today. Regular reviews keep your protection up to date.
FAQs
Does my commercial property policy automatically cover all of my inventory?
Commercial property policies usually cover inventory at the locations listed on the policy, up to the coverage limits shown. However, coverage can vary for items held off premises, in transit, or in temporary storage. Some policies have sublimits for certain types of goods or theft. It’s important to review how and where you store inventory with your agent to make sure all locations and situations are properly insured.
Are floods covered for inventory under standard business insurance?
In most cases, standard commercial property insurance does not cover damage from flooding caused by rising water or from earthquakes. These perils typically require separate policies or endorsements. If your business is in a flood prone or seismic area, talk with your agent about dedicated flood or earthquake coverage to protect both your building and your inventory.
How do I know how much inventory coverage I need?
Start with your current inventory records. Look at the maximum value of inventory you typically hold, not just the average. Consider seasonal peaks and special orders. Your coverage limit should be high enough to replace your inventory at today’s prices, including any shipping or handling costs. An agent at the Matt Patterson Agency can help you translate your records into appropriate coverage amounts and suggest options for fluctuating stock levels.
Does business insurance cover theft by my own employees?
Standard property policies often cover theft by outsiders but exclude theft by employees. To address losses from employee theft, you generally need commercial crime or employee dishonesty coverage. This can help protect you from inventory shrinkage, cash theft, and certain types of fraud committed by employees, subject to policy terms. It’s wise to pair this coverage with strong internal controls and regular audits.
What kind of insurance protects inventory that I store at a third party warehouse?
Inventory stored at a third-party location may not be fully covered under your standard property policy unless that location is scheduled on your policy, or you have off premises or inland marine coverage. While some warehouse operators carry their own insurance, that coverage may be limited and primarily protect their interests. It’s important to clarify who is responsible for insuring goods in storage and to have your own coverage in place where needed.
Putting Inventory Protection into Practice
Your inventory is the fuel that drives your business engine. Leaving it vulnerable to theft or disaster is a risk that can stall your growth or close your doors permanently.
By tightening security, addressing physical risks in your facility, documenting what you have, and aligning your insurance coverage with your actual operations, you can significantly reduce both the likelihood and the impact of a loss.
If it has been a while since you reviewed your business insurance, or if your inventory has grown or changed, this is an appropriate time to sit down with the Matt Patterson Insurance Agency. A short conversation and a policy review now can prevent unpleasant surprises later, when you need your coverage the most.
