| One tremendous benefit of insurance is that it enables free enterprise to exist. Insurance levels the risk found in our business as well as our personal lives. Banks could not offer loans without insurance to cover the assets held in collateral. In some instances banks will also require insurance to protect against the death or disability of the person making a loan.
Many businesses could not afford to manufacture products or provide services if there were no insurance policies protecting them against litigation for faulty workmanship. Contractors might need to provide performance bonds to ensure they complete their work, and liability coverage against possible injury or property damage they may cause.
Some firms provide fidelity bonds to protect against dishonesty of employees. Most professionals provide themselves with professional liability covering their negligence in acting or failing to act as expected by their clientele. This coverage can even indemnify them for the defense costs against lawsuits in which they prevail - being found not liable, but still owing for their defense.
Without insurance, a business could find itself unable to recover from a fire, a storm, or water damage loss to its operations. Beyond the cost of replacing assets which were ruined by the event, there is also the cost of sales lost while the business is unable to perform its daily functions or operations.
The need for property coverage benefiting the business owner is clear and undeniable. There is a self interest that drives the purchase of such coverage, even when no bank is pushing for it. The amount at risk can be readily measured in property losses. A business can sum up its assets and calculate their earning potential based upon current records. On the other hand, with regards to liability insurance, there is a huge unknown looming over the horizon which should not be
ignored.
What is the potential to cause harm to others by your business? How do you assess the amount which might be demanded of you, and then how much protection should you obtain in gaurding against this risk? These questions are not so easily answered. What is more disconcerting though is that so many businesses may be ignoring the questions altogether.
In formal terms this is referred to as Risk Management. Large firms have a risk management officer or department. They are charged with assessing risk in all aspects of the business and making recommendations or taking appropriate actions to handle that risk. For the rest of us in business for ourselves, we have to make these decisions about handling risk on our own.
Your exposure to risk is there from the day you opened your door for business whether you recognize it or not. When explaining how to handle risk, I like to use the simple four letter word TRAP. You can Transfer the risk to an insurance company in exchange for a set premium. You can Retain the risk and pay for the entire loss should it occur. You can Avoid the risk by selling or getting rid of the item that creates the hazzard. You can Protect the risk by taking some
reasonable actions, such as lighting walkways and parking lots, marking steps or modifying them to make them safer, etc.
You should combine these concepts and do some protection where possible, avoid the unecessary things, insure all you can afford and then retain the rest with care. The point is that we should not ignore risk, because that will not make it disappear.
Now that you have your income taxes are behind you, this might be a good time to review your operations and determine where you are exposed to the potential for loss. Discuss your insurance program thoroughly with your agent. You should not renew or buy a new policy without carefully considering your exposures and how coverage will respond. Don't renew your insurance program passively like you would pay your monthly office rent. You need to take an active role in educating
yourself and utilizing the professional advice offered by your agent.
Russell Janecka is a Certified Insurance Counselor. He is the owner of Janecka Insurance Agency in Victoria, and serves on the board of directors with Germania Insurance Companies. Call with your questions. (361) 573-4475 e-mail: reply@jiavic.com
© Copyright: Russell Janecka
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