Starting a Business: How to Choose Insurance

Oct 8, 2012 by

© Vladislav Kochelaevs – Fotolia.com

When you’re starting a new business, your natural instinct is to try to keep your outgoings as small as possible.  You might do your accounts in-house rather than paying an accountant or book-keeper.  You may work from home instead of hiring an office.  There are lots of areas where you can cut costs while you’re just getting started.

However, one area where you should not try to skimp is insurance.  Yes, having insurance won’t reduce the risks that you face in real terms, but it can help to soften the financial blow when something goes wrong. Insurance is a useful thing for any company to have, and in some industries, insurance is actually mandatory.

Evaluating and Managing Risks

There are several risks that companies face on a daily basis.  The key risk areas are strategic, compliance, financial, and operational.  Strategic risks, such as the possibility of a competitor taking a large amount of your market share, are hard to plan for.  The other categories are easier to predict, and to reduce.

A compliance risk could be the introduction of new legislation that is costly to comply with.  Financial risks could include a major customer not paying the money they owe you, or the interest rate on a loan increasing. An operational risk could be the breakdown of some important equipment, or the theft of some key machinery.

If one of the above problems were to occur, your first step would be crisis communications.  You would need to inform suppliers and customers, and make every effort to ensure that your business operated as normally as possible given the circumstances.

Ideally, though, you should be looking for ways to make sure that your crisis management training is never put to use. Every business should conduct a risk assessment where they lay out the worst possible things that could happen to their business, and work out how they can reduce the risk. Maybe you like to have at least a few months’ worth of operating expenses in the bank so that you can continue to trade even if a key customer misses a payment.  Perhaps you choose to upgrade your security equipment and sprinkler system to reduce the risks of break-ins and fires.

Most insurance companies will want to see your risk assessments and risk management plans so that they can see that you have taken reasonable measures to prevent things from going wrong.

Read the Policy Carefully

Once you have a good risk management plan, you can start looking for insurance.  There are several different policies, including liability insurance, business interruption insurance, and business travel insurance.

If you are an employer, you will need liability insurance to cover any potential injury claims that may result from people becoming ill or getting hurt while they’re at work.  If you accept customers on your premises, you may need public liability insurance to cover you for legal costs and compensation payments that may crop up while you’re trading.

Business interruption insurance would cover you for damaged machinery or other events that might cause you to lose out on profits, and business travel insurance would cover missing or stolen equipment, and possibly travel delays and other issues.

Read the terms and conditions of each policy carefully. In some cases, the circumstances under which you can claim are quite restrictive.  Make sure you choose a policy that covers you for the things that you’re concerned about – it’s worth paying extra to ensure that all aspects of your business are covered.

This guest article has been written and contributed by Amy Fowler on behalf of Insignia Communications, experts in crisis communications and crisis management training. Find out more here.

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