Determine your risk
Before you settle on what policies and strategies to implement, you must first determine which areas pose the greatest threats to your company’s livelihood. A thorough examination of all aspects of your operation, known as enterprise risk management, will uncover vulnerabilities.
“The first step is for a business to identify and separate into what their core risk and noncore risks are,” says Todd Belden, president, Cincinnati office, Hylant Group. “A noncore risk would be the risk of product failures or fire. A core risk would be the risk of a supplier going out of business, the credit risk of a customer not being able to pay [or] the human capital risk of an employee leaving.”
With peril lurking around every turn, you may feel overwhelmed. Your insurance broker or carrier can help you analyze how to best prevent disaster. You’re already paying for his or her service through premiums, so including your broker in risk planning is a cost-effective way to bring an expert to your side of the table.
“While not each risk you identify would have an insurance solution, you can at least look at ways to mitigate those risks and, in some cases, avoid it altogether,” Calonge says.
The slumping economy has exaggerated the market for some risks. Strapped with smaller budgets, many CEOs are reducing staff and facing the hazards that come with such measures. Wrongful termination lawsuits can soar during layoffs, and employees who fear they’re next on the chopping block could suddenly fall victim to a fabricated injury.
To protect your business from frivolous claims, consult with your insurance agent and attorney to ensure you are properly covered through employment practices liability and workers’ compensation insurance and that the actions you intend to take are legal. Directors and officers coverage may also be valuable during these times, as executives are forced to make tough decisions that deeply affect the company.
Additionally, you may be interested in credit insurance to keep your business running if your receivables are late. While many carriers have pulled back on providing such coverage, you can still take measures to protect yourself.
“Companies have always had a risk of extending too much credit to their customers,” Belden says. “Today, that’s really enhanced and really becomes more of a serious issue as they’ve leveraged their accounts receivable with their lending institutions. If they haven’t done a good job quantifying what the actual risk is, they could be putting themselves in jeopardy of not being able to collect.”
For each risk area, map out worst-case scenarios to determine which exposures you can tolerate and which components will require more in-depth attention. Once you have pinpointed the most dangerous aspects, you can begin examining insurance policies and preventive measures.
“What types of coverage you need is all about what you can afford,” says Bob Grigas, senior vice president, Wells Fargo Insurance Services of Ohio LLC. “What’s your risk tolerance? What keeps you up at night, and how we can make you sleep better?”