According to the Insurance Information Institute (III), about two out of every five companies don’t recover after collapsing due to a disaster. However, catastrophes are only a portion of the risks that small businesses across the U.S. face day-to-day. To protect your business against the many unforeseeable hazards, you’ll want to implement an effective risk management plan that includes insurance coverage.
Here’s a look at effective strategies to mitigate your business insurance risks.
Definition of Insurance Risk
In business, the insurance risk is any hazard that could bring you financial loss. It can be an occurrence or situation that negatively impacts your operational capabilities, business strategy, reputation, or ability to comply with the rules and regulations applicable to your practice/operations.
Major Types of Insurance Risk
Operating a business may expose you to these main risks:
Pretty much every business that has a digital footprint is susceptible to data breaches, including fast-food retailers and e-commerce companies. Similarly, businesses that accept credit payments face the risk of personal data theft and fraud.
Strategies to reduce this business insurance risk include:
- Incorporating EMV standards into your credit card technology to avert fraud
- Complying with Payment Card Industry Data Security Standards (PCI DSS)
- Cyber insurance to cover cyberattack costs like customer data breach notification, card payment penalties, damage control, recovery, and resolution, etc.
Damage to Property
Catastrophes and events like theft, fire, floods, wind, and storms can damage your business premises and interrupt operations. Strategies to mitigate financial loss from property damage include:
- Obtaining a commercial insurance policy that covers the physical structure of your building or office space, equipment, and inventory—all for their full replacement value
- Having a business interruption policy to replace lost income when a covered peril causes temporary business closure
- Creating an emergency response and disaster recovery plan to follow after disaster strikes
Human Resources Costs
Your employees also pose a risk of financial loss due to factors like workplace injuries and illnesses, and labor disputes. To mitigate this business insurance risk:
- Get mandatory workers’ compensation insurance policy for your employees
- Consider getting extra coverages like management liability and employment practices liability policies to protect your company and the top management against employee discrimination lawsuits and third-party claims
- Carefully plan any layoffs to avoid unnecessary financial costs and being sued by disgruntled employees
- Offer severance packages and other benefits
Professional Service Errors
An unhappy client can sue you for a “product” that’s substandard, even when you’ve done nothing wrong. Service industry practitioners like accountants, architects, and web developers can minimize the financial risk associated with professional negligence claims by:
- Getting professional liability insurance to cover attorney fees and any court-awarded damages if a client sues them for errors and omissions
International Manufacturing/Export/Shipping Bottlenecks
When running an overseas manufacturing business, you’ll sometimes face numerous obstacles beyond your control. Consider these tips to mitigate operational and supply chain interruptions:
- Get contingent business interruption coverage to control the financial loss from an issue with a vendor in your supply chain, such as a fire gutting down your oversees warehouse
- Purchase foreign package insurance to cover any risks you’ve identified abroad
New Construction Projects
New building projects create room for business expansion. However, they also present an appreciable level of risk. To minimize this business exposure, try these recommendations:
- Carefully plan all your construction projects
- Understand the contract’s fine print to avoid overpaying the builder
- Read and understand insurance protections related to the project in case of issues like worker injuries, property damages, or supply chain delays during the project
These are some of the most effective insurance risk management strategies for small businesses. To discuss your unique commercial insurance requirements, contact the team at Modab Insurance Services today. We are ready to help you obtain comprehensive insurance protection for your company.