Top Insurance Mistakes Hawai'i Business Owners Make (And How to Avoid Them)

A Hilo man built his auto repair shop from nothing to profitability through ten years of hard work, cultivating a base of loyal customers and achieving steady growth. He carried business insurance and thought he had everything protected. Then in 2018, Hurricane Lane brought flooding that destroyed $150,000 worth of equipment, tools, and inventory.

His insurance company denied the claim. Flood damage fell under a policy exclusion he never knew existed. The premium he saved by choosing not to purchase flood insurance cost him years of profits. Within six months, he closed his doors permanently.

Stories like this play out across Hawai'i every year. Business owners make insurance decisions that seem smart until disaster strikes. The good news? You can take a proactive approach to your insurance. This guide will help you understand common mistakes and give you things to look for so you can protect your business before problems arise.

Mistake #1: Shopping on Price Alone

It's natural to want to save money. Business owners work hard for every dollar, so comparing insurance quotes by price makes sense. The cheapest option feels like the smartest financial decision. Sometimes, this thinking leads to expensive problems.

Recent research shows that approximately 75% of small businesses are underinsured [1]. A 2024 survey found that 90% of small business owners lack confidence that they are adequately insured [2]. That gap between what owners think they have and what they actually need creates financial disasters.

Lower premiums usually mean one of three things: higher deductibles, lower coverage limits, or more exclusions. A policy that costs $500 less per year might have:

• A $10,000 deductible instead of $2,500.
• $100,000 in coverage limits instead of $500,000.
• Exclusions for equipment breakdown, flood damage, or business interruption.

When a claim happens, that $500 annual savings disappears fast. You might save $5,000 over ten years in premiums, then face a $50,000 gap in coverage after one incident.

Price matters, but coverage quality matters more. The right question isn't "What's the cheapest policy?" It's "What coverage do I actually need, and what does it cost?"

Mistake #2: Ignoring Policy Exclusions

Insurance policies spell out what they cover. They also clearly list what they don't cover. Most business owners never read past the first few pages of their policy. Those exclusions in the middle sections of the policy coverage form create expensive surprises during claims.

These common exclusions catch Hawai'i business owners off guard:

• Flood damage gets excluded from most standard commercial property policies. Heavy rain, storm surge, or rising water requires separate flood insurance. Many island businesses operate in flood-prone areas without realizing their standard coverage won't help when water rises.
• Equipment breakdown means your commercial refrigerator, HVAC system, or computer servers aren't covered when they fail because of certain events like electrical arching or power surge. The spoiled inventory might be covered, but fixing or replacing the equipment itself requires additional coverage.
• Cyber incidents including data breaches, ransomware attacks, or system failures usually fall outside standard business policies. As more Hawaii businesses move operations online, this gap grows more dangerous.
• Hurricane deductibles work differently than regular deductibles. Many policies have separate, higher deductibles for hurricane damage. That 2% hurricane deductible on a $500,000 building means you pay the first $10,000 of hurricane damage out of pocket.

Understanding exclusions before you need coverage lets you buy additional protection where gaps exist. Discovering exclusions after a claim leaves you stuck paying costs you thought were covered. Here are some questions you can ask your agent to get you started:

• "What types of damage or incidents aren't covered by this policy?"
• "Do I need separate flood coverage for my location?"
• "What happens if my equipment breaks down and causes other damage?"
• "How do hurricane deductibles work, and how much would I pay out of pocket?"
• "Are my coverage limits based on current replacement costs in Hawaii?"

Mistake #3: Not Reviewing Coverage Annually

Businesses change constantly. You buy new equipment, hire more employees, increase inventory, or expand into new locations. Insurance is often the last thing on your mind when you're focused on growing your business. Often times, your insurance coverage stays exactly the same unless you actively update it.

That $200,000 in coverage you bought three years ago might have protected your business then. Today, with inflation and business growth, replacing your property could cost $300,000. You're underinsured by $100,000 without realizing it. Business income coverage of $100,000 three years ago may have been enough, but insufficient today if your business has grown over time.

Hawaii faces unique challenges that make this problem worse:

• Replacement costs increase faster here. Everything ships from somewhere else. Construction materials, equipment, supplies, and labor all cost more in Hawaii than on the mainland. Your coverage limits need to account for these realities.
• Equipment ages differently in tropical conditions. Salt air, humidity, and constant use wear things out faster. Business equipment that could go 30 years on the Continental U.S. may need replacement in 15 - 20 years here due to salt corrosion. Your policy's coverage limit might not reflect actual equipment value in Hawai'i's climate.

Annual reviews catch these changes before they create coverage gaps. Schedule a meeting with your agent every year. Bring a list of any:

• New equipment purchases
• Inventory increases
• Ownership changes
• Additional employees
• Property improvements
• Business expansions
• New loans or contract requirements

Update your coverage limits to match current replacement costs, not what things cost when you first bought the policy.

Mistake #4: Delaying Incident Reports

Something happens at your business. Maybe significant, maybe minor. You're not sure if it's worth filing a claim yet. You decide to wait and see how things develop.

That delay can cost you everything.

Most insurance policies require prompt notification when an incident occurs. Your policy specifies exact steps you need to take when an insurable loss happens [3]. If you wait too long, your insurance company can deny the entire claim based on late notification alone.

This requirement applies even when you're not sure something will become a claim. Consider these scenarios: A customer slips on your floor and insists they're okay. A small kitchen fire gets put out quickly with what looks like minor damage. Your walk-in freezer stops working and you don't know the repair cost yet. In each case, report the incident to your insurance company.

Early reporting protects you in several ways:

• Documentation happens while memories are fresh. Witness statements, photos, and incident details get recorded accurately right after events occur. Wait weeks or months, and critical details disappear.
• Your insurance company can investigate immediately. Adjusters can inspect damage, interview witnesses, and gather evidence while it's still available.
• You meet policy requirements. Even if nothing comes of the incident, you've fulfilled your obligation to notify your insurer promptly.

Report anything that could possibly become a claim as soon as possible. Contact your insurance professional and insurer immediately after any loss [3]. Let your insurance company and agent decide if it needs formal processing.

Mistake #5: Working Without a Local Expert

Online quotes promise convenience and national call centers offer 24/7 service. These options seem efficient until you need actual help understanding Hawai'i-specific coverage needs.

Generic insurance advice doesn't account for operating a business in the islands. Hurricane and tropical storm exposure, volcanic activity for Big Island businesses, salt air corrosion, higher construction costs, tourism-dependent seasonal patterns, and Hawai'i-specific building codes all affect your insurance needs in ways that mainland agents may not fully understand.

Local independent agents understand these factors because they work with Hawaii businesses every day. They know which insurance companies write policies here, which ones understand island risks, and how to structure coverage that actually protects your specific situation.

Stop Waiting for a Disaster

Insurance mistakes can be costly for Hawaii business owners. Some businesses that weather hurricanes, floods, or equipment failures face challenges recovering due to coverage gaps they didn't know existed.

The cost of proper insurance protection is minor compared to the financial devastation of being underinsured when disaster strikes. Review your current coverage with a local independent agent who understands Hawai'i-specific risks.

Don't wait until after a claim to discover what your policy doesn't cover. Schedule a comprehensive review with your local insurance agent today. Proper insurance protection is an important pillar of your business success, helping safeguard everything you've worked hard to build.

Disclaimer: The examples provided in this article are hypothetical and are intended for illustrative purposes only. All scenarios, characters, and dollar amounts are fictitious and do not represent any actual individuals, events, or insurance claims. Readers should consult with a licensed insurance professional for advice specific to their situation.

Frequently Asked Questions

Q: Why is shopping for insurance based on price alone a mistake?

A: Lower premiums usually mean higher deductibles, lower coverage limits, or more exclusions that create coverage gaps during claims. Research shows approximately 75% of small businesses are underinsured, and 90% of small business owners lack confidence they are adequately insured.

Q: What common policy exclusions catch Hawaii business owners off guard?

A: Standard commercial property policies typically exclude flood damage, equipment breakdown, cyber incidents, and often have separate higher deductibles for hurricane damage. Understanding these exclusions before you need coverage allows you to purchase additional protection where gaps exist.

Q: Why should I review my business insurance coverage annually?

A: Businesses change constantly through equipment purchases, inventory increases, and expansions, but insurance coverage stays the same unless actively updated. In Hawaii, replacement costs increase faster due to shipping and labor expenses, making regular reviews essential to avoid underinsurance.

Q: When should I report an incident to my insurance company?

A: Report anything that could possibly become a claim immediately, even if you're unsure whether you'll file a claim. Delaying incident reports can result in denied claims based on late notification alone, even for legitimate losses.

Sources

1. ECBM. "Survey Shows 75% of Small Businesses are Underinsured." July 31, 2024. https://blog.ecbm.com/survey-shows-75-of-small-businesses-are-underinsured
2. NEXT Insurance. "90% of small business owners aren't confident that they are adequately insured, according to survey." January 3, 2024. https://www.nextinsurance.com/blog/survey-small-businesses-lack-confidence-adequate-insurance/
3. Insurance Information Institute. "Filing a Business Insurance Claim." Accessed September 30, 2025. https://www.iii.org/article/filing-a-business-insurance-claim