How often will he have a total loss of all his stock by fire ? If the insurance premiums over a ten year period would pay for the stock and he has a total loss after eleven years then he's ahead, assuming he has invested the money he would have paid the insurer. Note if he's squandered the money instead he can kiss his business goodbye.
I prefer to insure against catastrophic losses and wear the occasional minor one. Eg with travel insurance I will be covered if I am run over by a car and need emergency evacuation totaling thousands. If I cut my hand and have a doctors bill for a couple of hundred dollars I'll pay it myself. Making small claims just isn't worth it as your premium will only go up the following year.