Nobody plans for their business to fail, but as they say, failing to plan is planning to fail. If you want to run a successful business, the first and foremost thing that you need to do is to plan. A good business plan is one that does not only strategize ways to grow but also takes into account the potential risks that may come in the way of growth. This is where insurance comes into play.
Insurance protects your business from losses that can hinder growth. Nothing in life is free of risk, it is only that some risks are small and others are not. Some risks, you can manage on your own and others call for support. The purpose of corporate insurance is to give you the support for the risk that you cannot manage on your own.
Risk mitigation includes any measures you to take to prevent potential harm to your business. When you train your employees well in customer service best practices, you are attempting to reduce the risk of having dissatisfied customers. When you take measures to ensure that all the governmental instructions are followed regarding Covid-19 prevention in your workplace, you are reducing the risk of being held responsible for the spread of the virus. When you are putting all the terms and conditions of a new business deal on paper, you are protecting yourself against the risk of false claims.
No matter how careful you are, not all hazards can be prevented. Sometimes things just go wrong and the only thing that is left to do is to rectify the loss. Having a system in place for such cases is also part of risk mitigation and that is system is called insurance. Say despite following the best practices to avoid any mishaps, one day a part of your office floor is left wet and it causes someone to slip and incur an injury. If they are aware of their rights, they can go ahead and sue you for it. In such cases, the court is often sympathetic towards the injured complainants.
If this risk is covered under your insurance policy, your insurer will be the one who will pay for the lawsuit or the medical expenses of the injured if need be and if it is agreed upon in the terms of the insurance. This is a very basic example of how insurance can help you in difficult situations and prevent loss.
Another example can be business interruption due to a natural hazard like an earthquake or a flood. If you have business interruption insurance for these threats, your insurance will pay for any property damage that is caused due to such an event. Moreover, depending on the agreed-upon terms, your insurer may also compensate for the loss of business that occurs until the property is restored and the business is running as usual again.
Do I Still Need to Worry About Risk Mitigation if I Have Insurance?
Having insurance doesn’t mean you are covered for every possible risk. There are a number of different risks for which insurance companies offer different types of insurances. Therefore, it is very important to consider what each type of insurance means, what risk it will cover, and to what extent. If you have not bought any insurance to cover the risk posed by natural disasters, it will be only you responsible for any less in case of such an event.
Another important thing to remember when relying on insurance for risk mitigation is the terms and conditions that the insurance policy contains. Insurance companies use these terms and conditions to protect themselves from fraudulent insurance claims. For example, if your property is prone to water damage and you have bought insurance for it, the insurance company might set in place some rules and regulations regarding preventive measures that you must take in order to keep your property safe from water damage. If water damage occurs despite those measures, you will be eligible for insurance coverage, however, if the insurer finds that you have let the damage happen purposely to claim the insurance money, it will not be liable to cover the damage. Moreover, a fraudulent insurance complaint is a crime punishable by law.
What Are Deductibles and How Do They Affect the Premium?
There are some losses that you can easily cover for yourself. This is called self-insurance and the amount for which you are self-insured is called a deductible. The greater the deductibles, the lesser the insurance premium that you will have to pay.
Deciding how much you want to rely on external insurance and to which extent you want to increase or decrease your deductibles depends on the size of your business, your own ability to cover minor losses, and a cost-benefit analysis of whether or not you should be paying an increased premium for a risk that is not likely to occur or for a loss that you can easily cover yourself.
How Can I Know What to Get Insured For?
As discussed at the beginning of the article, deciding which type of insurance you should get is an important part of the business plan. The type of insurances that will be useful to you can vary from industry to industry. This is so because each industry and each business setting has its own demands and risks. Industries like construction are more prone to risks like physical injuries to the employees, however, the same risk is minimal for a digital marketing agency.
It is best to sit with your insurance representative so that he can use his knowledge of the market and his expertise in the field to guide you about the type and amount of insurance you should get. In order to keep up with the market and to get the best out of your insurance policy, it is crucial to periodically arrange a meeting with your insurance representative and make sure that you are on the right track.