We live in an increasingly litigious and complex society. Our businesses face many risks. The bible provides wisdom in how we should handle risk by giving us the simple advice to look ahead.
“A sensible man watches for problems ahead and prepares to meet them. The simpleton never looks, and suffers the consequences”.
Proverbs 22:3
Great advice with a warning attached. We need to look ahead and consider what problems could befall our business. They may or may not happen, but if we are prepared then we wont suffer the consequences.
Do you know the risks your business faces? No two businesses are the same. When making your initial assessment, consider these typical risks that your business may encounter at some point in time:
• Staff injury
• Liability for faulty products
• Intellectual property losses
• Poor advice
• Losses from fraud or dishonesty
• Property damage caused by fire, smoke, accident or storm
• Business interruption
Nothing unusual about these risks, but have your prepared for them?
Dealing with Risk – Your Options
As a business owner you have to make some tough decisions in regard to risk. These will involve budgetary considerations, assessing the impact of specific risks and creating strategies to mitigate risk. Here are some options:
➢ No insurance – also called Self Insurance, whereby you accept the risk and the potential downsides.
➢ Partly insure the value of the item
➢ Set an amount you can afford to lose and insure above the amount
➢ Fully insure – remove the risk entirely for a fee
➢ Emergency reserves – build up cash reserves to allow for potential losses
➢ Policies and practices to minimise risk (e.g. file notes, audio recordings of conversations)
Types of Insurance Coverage
There are many types of insurance cover available. Below is just a sample of what is in the marketplace.
- Worker’s compensations
- General Liability
- Car Insurance
- Property Insurance
- Product liability insurance
- Errors and omissions insurance
- Professional indemnity/malpractice indemnity
- Fire and theft insurance
- Business interruption
- Business expenses insurance
- Personal disability
- Key person insurance
- Life insurance
- Directors liability insurance
- Machinery insurance
- Marine insurance
- Transport insurance
- Water damage insurance
- Power interruption insurance
Risk Management Plan
Having a risk management plan allows you to identify the key risks for your business and to create strategies that can aid you in managing those risks. Developing a plan also allows you to determine which insurance types are suitable for your type of business. When organising your plan, don’t forget to select an insurance broker and complete a financial budget.
Getting Help
When it comes to insurance advice, there are two main types of advisers, an agent or a broker. An agent is an insurance adviser who only represents one company. They are an expert in that company’s products and will only sell products from that business. They probably have more sway with the company they represent and this may result in better deals.
An insurance broker represents multiple insurance companies and therefore is possibly less biased and can offer a wider variety of products.
Some Tips
➢ It always sensible to ask business colleagues or friends for referrals to try and fine someone who has a good reputation
➢ Check to make sure they have the appropriate licenses/qualifications
➢ Ask how long they have been doing what they do
➢ Don’t be afraid to ask a lot of questions
Conclusion
Risk Management is a vital part of running a successful business. The consequences of ignoring it can be devastating for a business. Here are some important things to remember and consider:
➢ It is not ‘set and forget’ – you should review your risks annually
➢ Read the fine print – you get what you pay for. If an insurance policy seems cheap then there is probably a reason for it – lower benefits.
➢ Ask lots of questions to your advisers. Don’t assume they know all your business needs and risks.
➢ Avoid excuses like “I will get around to it one day’ or ‘money is tight at the moment’
➢ Include risk management in your business plan