How to Manage Corporate Risks Using Business Insurance: A Beginner’s Guide
Insurance is one of the most misunderstood expenses of businesses. You do not usually see the benefit of insurance. Not until you need it. By then, it might be too late.
Every person is different. So is every business. Each business’ insurance needs will vary.
In this article, we will help you understand the business insurance industry. You will also learn how to ensure buying the right insurance for your business.
Risk and Insurance
Your business faces risk. There are many ways to deal with risk. One way is to use insurance.
Insurance transfers your risks to the insurance company. When the risk events occur, the insurance company will indemnify your losses.
Insurance is one of the popular methods to manage your business risks. But, you should not use insurance to manage all your business risks.
The best risks that insurance can manage is residual risks.
Residual risks are existing risks after you try to prevent and reduce it. Insuring your residual risks will also be cheaper.
Types of Business Insurance
There are many types of business insurances. But we can classify them into three categories:
There might be situations where your customers or third-parties sue you for damages.
For example, your employee might make a mistake. This mistake results in your client making losses.
Your client might sue your firm for damages.
Another example is when your employees suffer from work-related illness or injuries. Under the Work Injury Compensation Act (WICA), your employees can claim damages from you.
Liability insurance will indemnify your business when there are legal liabilities.
The most common types of liability insurances are:
Product Liability Insurance
Defective products might cause injury or damages to your customers. They might sue you for damages.
Product liability insurance protects your business from liabilities from such lawsuits.
Please note the difference between product liability insurance and warranty insurance. It is not meant to cover your losses if your product stops working.
Public Liability Insurance
Employees will make mistakes. But if your employees’ mistakes result in third-party injuries, then you face potential liability.
You can protect your business from such lawsuits with public liability insurance.
Public liability insurance is one of the more common liability insurances. Most businesses have some form of public liability risks.
Professional Indemnity Insurance
Unlike product liability and public liability, professional indemnity insurance is for professional firms.
When your mistakes result in your clients suffering losses, your clients may sue you for damages.
Professional indemnity insurance will indemnify your losses when that happen.
Work Injury Compensation Insurance
You can meet your requirements to WICA with a work injury compensation (WIC) insurance.
WIC insurance will indemnify your costs when your employees have work-related injuries.
Property insurance protects your property from potential damages or losses. The insurance includes commercial properties, business contents, equipment, and inventories.
There are many different types of property insurance. We list some of the common ones here:
Commercial Property Insurance
If you own property or office, you should have a commercial property insurance. A commercial property insurance indemnifies your loss due to damages, fire and theft.
Marine Cargo Insurance
Marine cargo insurance protects your goods-in-transit. Things can happen when you are shipping your goods to your customers. Some potential risk events are:
- Pirates might steal your goods;
- Fire might occur either on the ship or at the port; and
- Your goods might be damaged or lost in the shipping process.
A marine cargo insurance will indemnify your losses when such events happen.
Fidelity Guarantee Insurance
Not all employees are honest. Fidelity guarantee insurance protects your business when your employees are dishonest.
Dishonest employees can have a huge financial impact to your business. One example is when your employees steal cash from your retail business. Unless you have proper accounting records, you might not realise this early.
Fidelity guarantee insurance indemnifies your losses due to dishonest employees.
How to Buy Business Insurances?
Now you know what are the common business insurance, the next question is how can you buy them.
Before we move on to this question, let’s first look at the major participants of the insurance industry:
Insurance Industry Participants
The insurance company underwrites the insurance contracts. As a buyer of insurance, you can make claims when the risk events occur.
Most people are familiar with insurance agents.
For your life insurance, you probably buy the insurance from an agent.
An insurance agent represents the insurance company and acts on its behalf. This is the legal relationships.
In practice, insurance agents often help clients to solve problems. They do that by analyzing the client’s situations and recommend appropriate insurance products.
Anthola is an insurance agent.
Insurance brokers represent the insured, which is you. Based on your requirements, insurance brokers will request quotations from various insurance companies.
Large insurance brokerage firms often have specialized expertise in specific industries. They can often provide valuable advice for your business’s risk management process.
Why Should You Go Through An Intermediary for Business Insurance?
One common mistake is for businesses to approach insurance company directly.
While there are some merits to it, there are also some hidden costs. Here are some reasons why you should approach an intermediary instead.
Reason 1: Provides industry-specific consultations
One way intermediaries such as brokers and agents add value is advisory. They do not just sell insurance. Most intermediaries provide consultations and analysis of your business.
While approaching insurance company yourself might get a better premium, but you might be buying the wrong insurance. Cheaper insurance that is not what your business need is an unnecessary expense.
An intermediary will be able to better advise your insurance requirements based on your business needs.
Reason 2: Negotiating Terms and Conditions with the Insurance Company
You can customize business insurances to your needs.
But, without knowledge of insurance, how are you able to do that?
This is why you need someone who can do that on your behalf.
An intermediary will negotiate the terms and conditions of the insurance contracts with the insurer. They will ensure the terms will be based on what they understand about your business.
They can also explain how the insurance contracts can help your business manage its risk.
Reason 3: Providing after-sales services
One common after-sales service in the insurance industry is claims processing.
Have you ever made claims from your insurance company before?
Anyone can tell you that it is a troublesome process. This is especially true for business insurance.
An intermediary will help you to process claims. They will liaise with the insurance company on your behalf. This will save you lots of hassles in dealing with the insurance company yourself.
If you need to buy insurance, we can provide you with the necessary assistance. Please feel free to contact us for a no-obligation quotation.
Business insurance is complex. You should not try to approach it the same way as personal insurance.
In this article, we show you some of the most common business insurances. You also know how an intermediary can help you can the most suitable insurance for your business.
If you want to manage your business risk, please contact us for a free consultation. We love to speak to you.