You cannot insure against every conceivable loss, but you should try to get your money's worth when you buy a policy. Most consumers are not aware that buying insurance generally costs twice as much as actual claims, in the long run. If you are really smart, you assume some of those risks yourself in order to save money. Deciding when and how to do that is call "risk management".
The first step is to identify what risks you face before you can decide how to treat them. This is a principle that is frequently overlooked. For example, a paint distributor may store drums of toxic chemicals which could leak into the subsoil resulting in contaminated wells throughout the community. The risk has been identified.
The second step is to eliminate the risk. In this example the distributor may be advised to build a concrete containment storage area with frequent monitoring of the ground water for contamination levels around the site. Another option to eliminate the risk is to outsource certain hazardous work. For example, a Midwestern manufacturer of small anodized computer components, identified an explosion risk in processing parts at the plant. By outsourcing the job, the plant became a safer workplace.
If you are unable to eliminate a risk, a third option is to transfer the risk to someone else. The most common method of doing this is to purchase insurance. The downside of this option is that the cost of commercial insurance can be more expensive than self-assumption of many risks. This method is good for unpredictable, serious and immeasurable losses, and should be avoided for those that are predictable. For example, if your cost of business automobile scrapes and dents averages $1000 annually, your insurance premium is eventually going to approach $2000. Don't insure against "first dollar" losses, adopting a "deductible" approach makes good business sense for these predictable losses.
The primary purpose of insurance is to protect against catastrophic financial losses. What is catastrophic for one firm may differ from another depending on its financial resources. Though one thing is certain, every organization should retain some portion of its risk.
How much of a deductible that should be considered depends on several factors, including the firm's cash flow, resources, loss expectancy and frequency. All of which is equated against how much you save in premiums. Whatever those savings are at the bottom, you should consider spending them at the top of your insurance program before they are deposited in your treasury. Higher coverage limits may cost you relatively little compared to the coverage you'll get.
The best way to avoid costs is to reduce your chances of loss. Speak with insurance inspectors and loss control people and follow their advice. Make them an active participant in your business as they can offer the best guidance on combining coverages and preventing losses. These professionals will help keep you current with your policies and advise you when they need to be updated. You can also avoid chances for loss by investing in company safeguards as well. For example, install central station alarms, fire extinguishers, and properly store solvents and flammables.
All businesses should maintain a neat and organized facility and conduct periodic safety meetings with its employees. For special risks, consider hiring a risk manager or use a risk management consultant or an insurance agent with risk management training. Staying apprised of practices that similar businesses adopt to cover their unusual risks can be helpful and less costly.
Each business, big or small, should look into employment practices liability coverage as another avenue to reduce risk. We now see so many companies involved in lawsuits that fall under this policy, that it is becoming a necessity. These policies cover almost anything that involves your employees that you could be held liable for, in or out of the workplace such as sexual harassment and improper termination, to stalking a customer.
Every business has different needs and the insurance should cover you accordingly. Making sure you accept some responsibility for the cost of damage incurred is a way to help keep the cost of insurance within your budget. Always review your situation and talk with experts about the degree of insurance you require; everything cannot be done on your own. These experts have the experience to guide you in your decision process and help you choose an insurance plan best for you.
For more information contact: Haig Neville Associates, 3400 Commerce Rd., West Bloomfield, MI 48324. The phone number is 248-683-0380.