All Things You Need to Know About Business Insurance
Every business environment poses unique risks for business owners. It can be employee-related risks, loss or damage to company property, or potential legal liabilities. Hence, prudent entrepreneurs must do all they can to identify and mitigate such risks. One way to safeguard the business is by taking up business insurance coverage. Then, what should you expect from such a policy? Does your business need this cover if you already have other covers in place? We answer all this and more below.
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The Purpose of a Business Insurance
A business insurance cover is a policy that compensates businesses for losses in their business transactions. Such injuries of damages may arise due to:
- Vandalism
- Fire accidents
- Theft
- Lawsuits by customers, suppliers, or employees
- Tax compliance charges
- Sudden business interruptions or unfair competition causing a loss of income
Now, the above losses affect companies differently, depending on the nature of the business. Plus, the type of business insurance cover you choose will be a reflection of such risks. But, what kind of business risks does your enterprise face? Here are the seven prevalent business risks.
- Operational Risk: Operational risk relates to unexpected factors that may jeopardize the continuity of your business operations. They include fire accidents, technical hitches, power outages, or a natural disaster. Recovering from such risks can be time-consuming and costly. Companies must offer adequate training to their key employees. Further, the company must come up with a concrete business continuity plan to survive such disruptions.
- Reputation Risk: Companies that offer professional services must safeguard their brand reputation. A negative impression from an unhappy client, the media, or a lawsuit can have adverse repercussions on their operations. Today’s social media puts such companies at higher reputation risk. Even so, the negative news is almost impossible to contain once it hits such channels. And its impact gets amplified even further. Such companies must have a social media management section to monitor and respond to the public’s queries and concerns.
- Compliance Risk: Each enterprise operates within a set of laws and regulations. These guidelines touch on such matters as employment rules, advertising, and intellectual property. Even so, the rules may change over time. It is a reflection of the dynamic business environment. Next, every entrepreneur must stay informed and comply with the current regulations. Otherwise, they may face substantial legal liabilities that can disrupt their operations.
- Financial Risk: Do you run an online business, servicing a business loan, or offering your customers credit facilities? An increase in interest rates or exchange rates can harm your business. Keep your financial risk under control by maintaining a healthy debt asset ratio and debtor’s aging. Diversify your income sources to minimize the losses from this risk.
- Economic Risk: Do you operate in a volatile market? Or, do you serve the global needs? Then, you must assess the types of financial risks your enterprise faces. Such risks relate to changes in inflation rates, international supply chain requirements, or fluctuating interest rates. A positive change can be a boost to your operations. But, a sudden drop increase in inflation makes it expensive to do business on the global scene. Apart from maintaining healthy cash flow, business owners must have a contingency plan that includes taking appropriate business insurance coverage.
- Security and Fraud Risk: As more companies shift their operations to online or mobile channels, they become vulnerable to data breaches, cyber-attacks, identity theft, credit card fraud, and other security risks. Risk management that focuses on the latest security solutions is necessary. Plus, the company must train its staff on how to identify and report any suspect activities.
- Competition Risk: Last, businesses face stiff competition from other companies in the industry. Whereas such practice is welcome, some entrepreneurs may resort to unfair competition to push you out of business.
It is prudent that your company joins the local professional networks in your areas. Such organizations will monitor the key players, ensuring a level of the business environment for all.
Also, your marketing and acquisition segment should find new and better ways of offering products and services. It is about the continuous assessment of your processes and strategies. That way, you will always be one step ahead of your competitors.
Ways to Assess Your Business Risks
Now that we are familiar with the risks and potential losses they pose to your business, what type of business insurance coverage do you need? Liaise with a reputable insurance broker who will assist you assess the types of business risks facing your operations.
Insurance brokers have vast experience handling other companies with similar activities. They will analyze your internal controls and procedures. Further, they can recommend ways to safeguard your assets affordably.
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Types of Business Insurance Coverage
- Property Insurance: Most enterprises own physical property and physical property. These assets are prone to various risks including, fire, theft, and vandalism. The business owner must then take up property insurance to pay for any loss should any of these unforeseen risks happen. Property insurance will cover most company assets like office buildings, signage, furniture, and goods in transit. It pays for actual damage or the cost of repairs to get the support to its former condition. However, the cover excludes losses incurred due to a mass destruction event. Here, the entrepreneur must request additional policy for those location-specific disasters.
- Product Liability Insurance: Manufacturing businesses need product liability insurance for their products. Here, the policy pays for lawsuits arising due to defects or malfunctions in the products. Such claims relate to personal injury, deaths, or property damage by customers who bought your products. Hence, when such a claim arises, your business will not incur any legal costs.
- Professional Liability Insurance: Lawyers, accountants, doctors, and other service providers need an insurance cover that cushions them against malpractice, negligence, or misrepresentation. In turn, professional liability insurance provides an adequate cushion for such professionals. Note that the name and scope of professional liability coverage vary from one profession to another, reflecting the unique risks involved. For example, health professionals can take up the medical malpractice cover to safeguard against lawsuits arising out of any negligent acts. In contrast, the errors and omissions insurance coverage apply to accountants, real estate agents, and technical experts. However, professional liability insurance excludes claims resulting from illegal cyber activities or any form of criminal prosecution.
- Worker’s Compensation Insurance: The worker’s compensation insurance pays employees or their beneficiaries for injuries or death while at work. Such payment can be in the form of reimbursement for inpatient medical bills and rehabilitation costs. Second, employees get compensation for disability and lost wages arising from the accident. Families or beneficiaries of employees who lose their lives while executing their work can claim a refund for funeral expenses and other applicable compensations. Note that this coverage is mandatory in most states in the United States. But, once effective, employees forfeit the right to sue their employers for the tort of negligence. And a business must meet the minimum employee threshold to be eligible for the cover. This threshold varies from state to state.
- Commercial Auto Insurance: Commercial auto insurance pays for injuries or damages incurred when using company-owned vehicles for regular business activities. Such activities include attending client meetings, collecting office supplies, making free deliveries to customers, making site visits, and ferrying office staff or business partners. Also, this cover includes employee-owned vehicles used for business errands. Personal insurance may not offer full compensation for the massive losses when an accident occurs for such cars. Ensure you insure all your company vehicles against third-party injury.
- Business Interruption Insurance: A business interruption insurance coverage is ideal for businesses whose competitive advantage lies in their physical location. That is companies in the retail trade, logistics, and distribution, or other manufacturing plants. In turn, it pays for any lost income when there is a massive disruption to business operations.
Conclusion on Business Insurance
What type of business risks does your company face? Do you have measures in place to mitigate such risks? If not, book an appointment with your insurance broker to analyze the risks. Then, the broker will suggest the type of business insurance coverage that best fits your operations.