Did you know that 40% of businesses will file an insurance claim across a 10-year period? This means that, more than likely, having business coverage will pay off during the lifetime of your business.
Insurance is an essential piece to managing business risk. If you don’t think you need business insurance, you do. Business insurance can help your company survive lawsuits, emergencies, and more.
What do you need to know about insurance risk management to mitigate risks as a business owner? Keep reading to find out.
Strategic Risk Management Process
The strategic risk management process involves recognizing, assessing, and managing possible business threats. Every business will have its tolerance level and the process of risk management evaluates that as well.
For companies, insurance is an essential function of risk management. Insurance risk can be broken down into four categories: operational, strategy, compliance, and reputational.
Operational risks might come from day-to-day business dealings. Insuring tangible assets like property and equipment can help mitigate risk. Workers, customers, and overall services or products also need to be covered.
When you protect your business operations from outside events, you are covered if the worst was to happen.
Other businesses or your business might dilute or disrupt your business strategy and lead to strategic risk. Your business should stick to a strategy to avoid this type of risk.
If a competitor were to outperform your product or service or undercut prices, you run the risk of falling behind in the industry. Avoiding strategic risk involves researching your competitors to better protect your business.
You can also find insurance policies that help with cash flow problems that might occur from strategic risk.
Your industry and the government might have certain rules and regulations that you must adhere to to avoid compliance risk. Compliance might come in the following forms among others:
- Tax burdens
- Municipal zoning
- Property laws
- Distribution laws
You should understand and follow the latest rules for your industry and business to eliminate compliance risk. You can’t purchase insurance related to taxes, but you can be at fault by avoiding certain obligations.
Every business has reputational risks that come from security problems like data breaches and cybersecurity issues. It also involves protecting your logo and brand so no one else can taint it.
If either is compromised, you can insure your business and customer data for protection.
Insurance Risk Management
To understand insurance risk management, you need to know the common types of insurance risks and what to do about them. Although business risk falls into four different categories, each has multiple risks.
An insurance risk management plan can help you with the following types of risk:
1. Data Breaches
Every industry has seen an increase in cybersecurity problems. Businesses that accept credit cards as a form of payment should regularly reevaluate security practices to protect customers against fraudulent activity.
Cyber insurance and cyber coverage can help businesses small and large avoid risk. Cyber coverage specifically can protect businesses from data breach costs, remediation, crisis management, card payment penalties, and public relation.
2. Property Damage
Weather events like floods, hurricanes, fires, and snowstorms can do major damage to your property and throw a wrench in your day-to-day operations. While repairs are happening, you won’t be able to run your business normally.
The first line of defense for property damage or theft is insurance coverage. Make sure your business is insured based on its true value.
Business interruption insurance can also help in the event of property damage by keeping the cash flow going even if operations have been temporarily halted.
Based on historical and geographical research, decide what property risks are most likely to occur and create a plan to combat the issue. Your business should have a protocol in place if an interruption were to occur.
3. Human Capital Costs
Employees can create company risk no matter their job title. Employee actions can affect a company’s well-being both positively and negatively.
Your business might have to undergo cutbacks and layoffs which can be an expensive burden and lead to unexpected financial risk. Unemployment insurance costs are an expensive option for employers.
Any business with employees has to have workers’ compensation insurance, but other insurance policies can mitigate employer risk. Employment practices liability and management liability insurance are other options.
4. Professional Service Mistakes
Service providers face the continual risk of clients seeking legal help if their expectations aren’t met. Small business owners should lose the idea that their work is so good that no client would sue them.
Your business might not even make a mistake and still get sued. An unwarranted lawsuit like this can still cripple your business by taking away significant money and time.
Professional liability insurance can protect a business that has been sued for a mistake. These policies cover defense costs and damages up to a certain limit through a business insurance claim.
5. International Manufacturing Issues
Companies that utilize overseas factories to manufacture or export their product can experience export/transit issues. A lot can go wrong on the journey to shipping your product to the warehouse.
Contingent business interruption insurance can soften the financial blow that these problems cause. It is also recommended to look into foreign package policies to extend your insurance coverage to international exposures.
Lopriore.com works with multiple insurance companies to create a business insurance program that can mitigate your specific risks. There you’ll find the insurance coverage options in this guide and more.
Mitigate Your Risk as a Business Owner
Every industry and individual business will have its own level of risk based on the four categories of business risk. It’s up to you as a business owner to decide which risks are most prominent.
Never ignore a business risk especially those that are common throughout every industry. For every risk you have, you should have an insurance risk management plan in place.
Protect your business from the unexpected by using this guide and don’t forget to come back to our website for more business advice.