Sometimes, our job is to tell you to buy less insurance. Insurance policies don’t cover every conceivable kind of loss; they also aren’t a means for completely transferring risk, because whether you’re paying for losses directly or paying premiums, you’re always in some sense paying for the costs of the risks you face. Insurance should not be the beginning or the ending of your risk management process; it should be just one tool in the toolbox.
What is Risk Management?
It’s a process of identifying, measuring and analyzing the risks that your business faces; developing methods to control the risks that you can, and finance the loss costs for what you can’t; and implementing and monitoring the results.
This can be done with checklists, surveys and physical inspections; it can also be useful to look over your business’ financial statements, key contracts, policies and procedures. It is also critical to review and analyze your business’ history of losses.
Analysis & Control
In reviewing your risks, some occur frequently but the consequences are not financially severe. Others are highly unlikely, but if they did occur, they could be devastating to your business. It’s traditional to use at least one “control” method and one “financing” method to avoid a risk if possible, and have a way to pay for it if it does occur. Control might mean extra safety controls, or hiring an outside vendor to do that work, or avoiding certain jobs altogether.
Insurance is one way to do pay for loss cost, but it is not the only one. Sometimes it makes sense to retain some of those losses and only insure them if they go above a certain dollar amount; there are many options, especially as your business grows and develops a more predictable loss history.
- Don’t risk more than you can afford to lose
- Don’t risk a lot for a little
- Consider the likelihood of any given loss
- Don’t treat insurance as a substitute for risk management
If we can be of any assistance in finding alternative ways to manage your business’ risk, please don’t hesitate to contact us.