Insurance as a Risk Strategy

The most common method of transferring risk is insurance. By insuring your home and your car, you have transferred much of the risk of loss to the company that issued the policy. You pay a relatively small amount in premium rather than run the risk of not protecting yourself against the possibility of a much larger financial loss.

In business insurance, as in personal insurance, only you can decide which exposures you absolutely must insure against. Some decisions, however, are already made for you:

those required by law (such as workers' compensation).

those that others require. For example, you cannot register or operate a business vehicle in most locations unless you can prove that it is insured. Similarly, few lenders will finance property acquisition or construction unless it is adequately insured, and unless they are named on the policy as having an insurable interest.

Today, very few businesses or individuals have sufficient cash or financial reserves to protect themselves against the hundreds of property and liability exposures that most businesses face.

What those exposures are, what their dollar value is and how much protection is enough, are thorny questions. When you add the need for an employee benefits program, the need to protect the business when its ownership or management changes, the picture becomes increasingly complex. That is why the experience and professional knowledge of an insurance agent are so important in helping you cover all the bases.

The Role of the Insurance Professional

The agent is the insurance industry's primary client representative. Typically, the independent agent is a small-business owner and manager. By using this distribution system, insurance companies are represented by agents who receive a commission for selling the companies' products and services. An agent may represent more than one insurance company.

The professional independent insurance agent has been trained in risk analysis. He or she is familiar with the insurance coverages and financial strategies available in your place, and with the regulations that govern them. With this expertise, the agent can point out exposures you may otherwise overlook.

Finally, your insurance professional can help you develop possible solutions. You make the final decisions, but your agent can suggest options from a vast menu of risk management strategies. He or she has the technical knowledge to amend a basic policy by adding special coverages and endorsements. The resulting policy will be custom-tailored to your business's unique protection needs.

Your agent can also recommend non-insurance strategies to meet your needs. Where appropriate, he or she will suggest that your accountant and attorney be brought into the decision-making process to review the legal and tax implications of suggested strategies.

Other Services Insurers Provide

You may not be aware of some of the other services that insurance companies provide to policyholders.

Legal defense. Liability insurance coverages (particularly for property damage and bodily injury) usually include legal defense at no additional charge when the policy- holder is named a party to a lawsuit that involves a claim covered, by the policy. Litigation is costly, whether the claimant's suit is valid or ridiculous. The legal defense provision greatly reduces those costs.

Inspection services. Many cities require businesses to conduct regular inspections of the steam boilers in commercial buildings. Boiler and machinery insurance policies not only protect against certain kinds of damage to energy equipment but also provide for inspection by the insurance company's specialists. The insurance company issues a certificate of inspection to the policyholder as proof that the inspection requirement has been met.

Loss control services. Some commercial insurance policyholders may also qualify for consulting services of the insuring company's Loss Control (or Engineering) Department. This department is staffed with engineers and safety experts who specialize in inspecting business premises, identifying hazards, perils and possible trouble spots and in recommending possible solutions.

Insurance Checklist for Small Business

In addition to helping you identify, minimize and in some instances eliminate business risks, this checklist will help you strengthen your insurance program and provide guidelines for discussions you should have with a qualified insurance professional.

The points covered are grouped under three general headings: 1) coverages that are essential for most businesses; 2) coverages that are desirable for many firms; and 3) coverages for employee benefits.

This checklist is followed by a brief discussion of four basic steps that are necessary for good insurance management: 1) Recognize the risks to which you are exposed. 2) Follow the guides for buying insurance economically. 3) Have a plan. 4) Get professional advice.

Some small-business owners look on insurance as if it were a sort of tax. They recognize that it is necessary but consider it a burdensome expense that should be kept at a minimum. Is this view justified?

Not if you take a more conservative approach. You can use insurance to get many positive advantages, as well as the negative one of avoiding losses. Used correctly, insurance can contribute a great deal to your success by reducing the uncertainties under which you operate. It can reduce employee turnover, improve your credit at the bank, make it easier to sell customers on favorable terms and help keep your business going in case an insured peril interrupts operations. The potential benefits of good insurance management make it well worth your study and attention.

CHECKLIST

The points covered in the checklist are grouped under three general classes of insurance: 1) coverages that are essential for most businesses, 2) coverages that are desirable for many firms but not absolutely necessary and 3) coverages for employee benefits. For each of the statements, put a check if you understand the statement and how it affects your insurance program. Then study your policies with these points in mind and discuss with your agent questions you still have.

ESSENTIAL COVERAGES

Four kinds of insurance are essential: fire, liability, automobile, and workers' compensation insurance. In some areas and in some kinds of business, crime insurance, which is discussed under "Desirable Coverage," is also essential.

Are you certain that all the following points have been given full consideration in your insurance program?

ToAs the Proprietor of Your business you deal with problems on a nearly daily basis. Being comfortable with powerful Problem Solving
Techniques can radically alter the growth of your small business.

Even though you Find answers to your issues, many businessmen and women are not really skilled in the ways of problem solving, and
if solutions neglect, they fault themselves for misjudgment. The problem is typically not misjudgment but rather a lack of
ability.

This guide Instructs you in a few problem solving techniques. Critical to the success of a business faced with problems is your
understanding of just what the problems are, defining them, finding solutions, and picking the best solutions for the situations.

What's a problem. A problem is a situation that poses trouble or perplexity. Issues come in many shapes and sizes. By Way of
Example, it may be:

Something did Not function as it should and you do not know how or why. Something you will need is unavailable, and something must
be found to take its place. Employees are undermining a brand new program. The market is not buying. What should you do to
survive? Customers are complaining. How can you manage their complaints?

Where do Issues come from? Problems arise from every aspect of human and mechanical functions as well as in nature. Some problems
we cause ourselves (e.g., a hasty decision was made and the wrong person was chosen for the job); other issues are caused by
forces beyond our control (e.g., a warehouse is struck by lightning and burns down).

Issues are a Natural, everyday occurrence of life, and so as to suffer less from the tensions and frustrations they cause, we must
find out to manage them in a rational, logical manner.

If we accept The simple fact that issues will arise on a regular basis, for many different reasons, and from a variety of
resources, we could: learn to approach problems from an objective point of view; learn how to anticipate some of them; and prevent
some of them from becoming bigger issues.

To accomplish This, you have to learn the procedure for problem solving. Here, we will teach you in the basic procedures of
problem-solving. It is a step by step guide that you may easily follow and practice. Since you follow this guide, you will come to
develop some strategies of your own that function in concert with the problem-solving procedure described in this guide.

Keep in mind, Though, as you see this isn't a comprehensive evaluation of the artwork of problem-solving but instead a sensible,
orderly, and simplified, yet powerful, method to approach problems contemplating the limited time and advice most business owners
and managers have. Additionally, some issues are so complicated that they require the additional aid of specialists in the field,
so be prepared to accept the fact that some issues are beyond just one individual's ability, ability, and desire to succeed.

To be able to Appropriately identify the issue and its causes, you have to do some study. To do this, simply list all the
preceding queries in checklist form, and keeping the checklist useful, go about gathering as much info as you possibly can.
Remember the relative importance and urgency of the issue, in addition to your time limitations. Then interview the folks involved
with the problem, asking them the questions on your own checklist.

When You've Gathered the information and reviewed it, you'll have a pretty clear comprehension of the issue and what the major
reasons for the problem are. At this point, you can research the causes further through monitoring and additional interviewing.
Now, you should outline the issue as briefly as you can, list all of the causes you've identified, and record all of the regions
the problem seems to be affecting.

At this point, You are ready to assess your understanding of the problem. You've already identified the problem, broken down it
into all its aspects, narrowed down it, done research on it, and you are avoiding typical roadblocks. On a huge pad, write down
the problem, including all the factors, the areas it affects, and what the consequences are. For a better visual comprehension,
you might also want to diagram the issue demonstrating cause and effect.

Study what you Have written down and/or diagrammed. Call on your employees and discuss your analysis with them. Based on their
feedback, you might choose to revise. Once you think you completely comprehend the causes and consequences of the issue, summarize
the problem as succinctly as simply as you can.

Go through your Long list of solutions and cross-out those who obviously will not work. Those notions aren't wasted for they
impact on those ideas that remain. In other words, the very best ideas you pick may be revised depending on the ideas that
wouldn't work. With the rest of the solutions, use what's called the"Force Field Analysis Technique." This is basically an
analysis technique that breaks the solution down into its positive results and negative outcomes. To do this, write each solution
you are considering on a separate piece of paper. Below the solution, draw a line vertically down the middle of the newspaper.
Label one column advantages and one column downsides.

Now, some more Analytical thinking comes into play. Assessing each facet of this solution and its influence on the issue, list
every one of the benefits and disadvantages you can think of.

One way to help You think of the advantages and disadvantages would be to role-play each solution. Call in a few of your employees
and play out each alternative. Ask them for their responses. Based on what you observe and on their opinions, you'll have a
clearer idea of the advantages and disadvantages of each solution you're considering.

Once you Complete this process for every solution, pick those solutions that have the Many advantages. Now, you ought to be
considering only two or three.

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