1) Property loss. Insurance against property damage or theft protects the physical assets that support your business including buildings, equipment, vehicle fleets and inventory, as well as intangible assets such as licenses, patents and accounts receivable. To arrange the right level of insurance you must know your rights and obligations as an owner, tenant, leaseholder, landlord or mortgage holder. You must also take into account local bylaws on standards for physical repair and reconstruction.
2) Liability loss. Every business is exposed to liabilities and should be protected against the major ones, including personal injury, product failures or negligence.
3) Personnel loss. Group health and benefits insurance can help to improve employee retention and well-being, reducing the cost of turnover and lost time.
4) Net income loss. Some businesses are exposed to specific perils that are beyond their control and that would cause critical damage to the viability of the business. For example, a food services operation might insure against a major electrical outage that would result in spoilage of their inventory.
Consider the underlying risk-drivers in your business.
Your broker can help you read the risks in your business and suggest an insurance mix that takes your risk tolerance and financial situation into account. The following are examples of common risk drivers:
- Heavy reliance on limited sources of income
- Dependence on one or a few people to run the business
- Elaborate and specialized physical assets
- Extensive international operations
- Sensitivity to factors outside your control, such as weather and commodity prices
- Labour unrest
- High levels of inventory
- Large vehicle fleets
- Rudimentary workplace health and safety practices
- Dangerous materials handling
- Know your risk exposures. The first step is to accurately identify and analyze the risk exposures to your tangible and intangible property, your income, personnel and liabilities. These can be determined in a thorough audit of your office, warehouse or shop floor to identify all perils, probabilities and potential financial consequences.
- Consider the risk management alternatives. Insurance is one form of “financing” your risk, but there are other alternatives to explore. These include eliminating the exposure, loss prevention, loss reduction and contractual transfer of responsibility for losses, for example, when a lessee assumes the liability for damages to leased space. A thorough risk management plan will examine all these alternatives before getting to the issue of insurance.
Business insurance is the most widely used of all risk financing techniques because of the cost-effective protection it provides. General and specialized policies can cover just about any peril. Another way to manage risk is to be financially prepared for a loss. One way to do this is to accumulate your own capital reserves to cover the loss, but this can tie up large amounts of capital at low rates of return.
- Implement your plan. With loss prevention and reduction plans in place, your broker can help you implement your insurance program with one or multiple insurers.
- Monitor and adapt your plan. Make sure to adapt your plan to match the changes in your business including geographical expansion, physical growth, new lines of business or increased complexity. Consider an annual review of your needs with the help of your insurance broker.
Business Interruption – This form of insurance provides you with the funds required to protect your business financial position if your operations are interrupted by an insured loss such as a fire. This form of insurance is highly customizable and can include coverage for extra business expenses, rental income lost, gross earnings lost, payroll and professional fees.
Consequential Loss – A consequential loss is not caused directly by damage to property but is a consequence of other damage. For example a cold storage facility might experience significant inventory losses if an on-site transformer station failure cuts out electricity supply or a fire damages the refrigerators.
Equipment Breakdown – Many policies will exclude coverage of breakdown or damage to highly sensitive or specialized equipment including high-pressure boilers, control systems and computers, diagnostic equipment and more. Special machinery policies can cover equipment for sudden and accidental breakdown.
Errors and Omissions and Director’s and Officer’s Liability – It is common practice to protect company directors and senior managers from personal liability for actions that are the responsibility of the company they direct. While insurance does not remove their fiduciary duty, it does provide some financial protection from legal liability for a claim made against them for an alleged or wrongful act. A wrongful act is any error, misstatement, misleading statement, act omission, breach of duty or neglect allegedly committed or attempted. Errors and omissions insurance is usually used in professional services firms such as law, accounting and consulting to protect professional staff from the impact of errors and omissions in their work.
There are as many forms of specialized coverage as there are risks to your business. Your broker can help you determine if there are risks unique to your business that require extra protection. For example:
- Crime – designed to protect against loss of money or securities, including theft overnight or on the way to the bank. This also includes employee dishonesty.
- Electronic Data Processing Systems – protects your computer and its data.
- Sewer Back-up – covers loss or damage caused by the backing up of sewers, sumps, septic tanks or drains.
- By-law Coverage – covers additional expenditures resulting from by-laws regulating construction when reinstating a building after a loss.