Make Your Business Less Risky

Not long ago, a new restaurant in New York City was sued by a customer who had become ill and missed work for several weeks after eating contaminated food. The restaurant owner had a basic business owner’s insurance policy, but when the case was settled, an unfortunate surprise awaited him. The settlement amount exceeded the standard coverage, and the owner didn’t have umbrella liability coverage, which would have picked up the excess costs.

The owner had to pay a portion of the large settlement, as well as the costly legal fees out of his own pocket. This had a major impact on this owner’s financesas his restaurant wasn’t yet profitable and he had to dig further into his savings to pay the costs. He even considered closing the restaurant due to this incident, although ultimately the business did recover.

In business, as in life, it’s a good idea to occasionally ask yourself this question: What’s the worst that could happen? Business owners tend to be so busy managing the day-to-day crises of running a company that it’s easy for them to forget they could lose part or all of their most valuable asset to a disaster or a lawsuit.

There are two ways to reduce your risk of disastrous losses: One involves minimizing the chance that something bad will happen; the other involves making sure you don’t suffer financially if it does. To accomplish the first goal, you need to take steps to avoid trouble. To achieve the second, you need to have the right kind and amount of insurance coverage.

But before you can begin the process of protecting your business, you need to fully recognize the risks it faces. There are risk assessment questionnaires readily available online (there is one at hubnortheast.com/page.php/prmID/48) that can simplify the evaluation process. Once you’ve identified some of the risks, you should consult with an insurance professional to see what you can do to mitigate them. A knowledgeable professional will discuss your insurance options to determine how much risk you want to “transfer” and how much you might want to retain, or self-insure for. Just as you don’t want to be underinsured, you don’t want to be over insured either, and pay more in premiums than you need to.

Self-Diagnose Your Business Risks

There’s no substitute for sitting down with a good insurance broker who really takes the time to understand the risks facing your industry and your business in particular. But first you should understand your company’s “exposure to loss.” That’s insurance-speak for “what could go wrong.” A simple approach to understanding exposure is to break down the risks a business faces by category.

Basic Risks
Businesses of all types, across nearly all industries, face some common risks. One type is property damage or other loss. You could have a fire at headquarters, and your property or equipment could be damaged. You could suffer “business interruption” for any number of reasons, and suffer the financial losses that come with not being able to conduct business. A key employee (such as a partner) could die, and the company could suffer because he was crucial to operating the business. Sometimes the disaster isn’t a natural one, but could still be devastating: An employee could steal from your company, perhaps transferring company funds into his or her own bank account.

The second type of risk is the ever-present possibility you’ll be sued — for any number of reasons. Most companies have general liability exposure (being sued by a third party who has suffered bodily injury or property damage), as well as umbrella liability exposure (which would include any losses where the dollar value exceeds your regular liability coverage). There are other potential liabilities: If your business has cars or trucks, you have motor vehicle liability exposure. One of the fastest-growing areas of litigation against businesses of all sizes is employment-related lawsuits. Any business that has employees could find itself accused of employment discrimination, wrongful termination or sexual harassment. In any lawsuit, legal fees alone can be costly regardless of the validity of the allegation.

One big misconception many business owners have is that they’re covered for these kinds of hazards because they have a standard business insurance policy. They don’t understand until they’re filing a claim (and it’s too late) that oftentimes a standard policy has dollar limits or will cover only partial damages. For instance,a standard business owner’s policy may have a limit of only $10,000 for employee theft or dishonesty.

Industry- and Company-Specific Risks

Small businesses need to be aware of the unique exposures they face by virtue of their industry and the nature of their operations. Manufacturers face product liability risks, where they can be sued for injuries allegedly caused by their products.