An important part of running any business is an examination of the risks faced by that business. Insurance is one of several risk management strategies available to businesses.
Insurance is not always the answer in addressing risk if the cost of insurance becomes prohibitive or if a less expensive strategy presents itself. For example, one way to limit damage to vast inventories is to have multiple storage areas. That way if a fire or other disaster occurs in one location, the others will not be affected and losses will be limited. Another non-insurance method of addressing risk is an old fashioned savings account. Earmarking funds specifically for losses that may happen is called self-insurance. This is practiced widely throughout all industries and in some cases; business will maintain a self-insurance retention fund of millions of dollars.
Businesses will often determine that insurance is the best risk management strategy. There are many insurance products to consider, but most small businesses will need to consider insurance for liability, autos, and workers compensation.
Liability insurance is one of the most important products that a business should purchase. Liability claims can become quite costly and they are very common. This is generally because businesses tend to be viewed as a large source of funds. This type of insurance will protect the business from claims resulting from injury or property damage that the business causes to people or organizations. It will generally also pay for defense costs in the event of a lawsuit. Professional liability insurance is also available and is designed to protect professionals in the event that they cause injury or damage due to an error or omission.
Businesses that own and maintain vehicles of any type need a policy that insures those vehicles both for auto liability and for physical damage. The liability section of the policy will afford coverage to the business in the event that their activities or employees cause an accident. This section of coverage may also have benefits available to any employed drivers and/or passengers in vehicles that are involved in accidents. The physical damage section of coverage will protect the business by paying for repairs or replacing damaged vehicles.
Employees need to be covered by a separate policy called Workers Compensation. This type of insurance is most often required by statute. A general liability policy most often excludes coverage for employees. Additionally, laws do not allow employees to sue their employers and this is where workers compensation coverage comes in. Companies can self-insure for workers compensation, but the risks often outweigh the benefits of such a program. Workers compensation policies pay for medical bills and lost wages for employees that are injured on the job. When an employee sustains a serious injury, these costs can be enormous.
In most cases, insurance can provide the protection a business needs at a reasonable cost. Businesses should carefully plan for the risks they may face and develop a strategy that includes insurance and non-insurance methods of protection.