Risk & Business

Referring once again to the study from the National Association of Insurance Commissioners that I referenced earlier this month, I found an interesting point highlighted in the report regarding Key Person Insurance. The report stated that those small businesses contacted were extremely dependent on just a few key people for their "success and viability". It goes on to state that among those businesses, 71% were "very dependent" on only one or two key people. While this dependence on a limited number of personnel decreased as the company size increased, over half of the firms contacted with over $1million in annual revenue, stated that they were "very dependent on one or two key people to keep operations running smoothly". Notwithstanding this, the report highlighted, to me, a glaring statistic. Of those small businesses, only 22% had obtained Key Person Insurance. The obvious statistic, 78% did not have this coverage at all, is the real point of th...

With the focus of this blog on small business insurance and risk, we would be remiss in not mentioning an important facet of any small business' risk management program, disaster planning. It cannot be overstated how important it is to set up a plan in advance to prepare for the possibility of your business suffering a major catastrophe. In the event of a hurricane, tornado, flood, etc. and your workplace/structure was wiped out, it might be good to know where you would set up an alternative place to work until your original structure was repaired or replaced. What about information systems and the valuable business related information contained in them? Are these systems backed up on consistent basis? What if they are wiped out? Do you have access to the backed up/saved information in a timely manner in order to get up and running? Think of the nightmare in having to recreate the systems you use on a daily basis. You don't even want to get into the headache of lost fi...

The term Risk Appetite is used often in the insurance industry, as it has in a previous post on this blog. But what exactly is "Risk Appetite"? Is it the upper amount of risk an organization is prepared to accept? Is it relatively fixed and a goal simply targeted? When an organization thinks about how much risk they are prepared to accept have they thought about the actual cost factors that weigh into that decision? Often we think of risk in terms we can quantify on it's most basic level. Examples being how much to insure a building, contents, business income, etc. These examples are fairly easy to quantify, the building costs X amount to rebuild in todays dollars, etc. But a well thought out risk analysis, and quantifying the related limits we are willing to accept, must go deeper into the process. Thought must be given into the controls a business owner puts into place to address risk containment, and if the costs budgeted to address a specific area of risk ger...

I came across an interesting report issued last year by the National Association of Insurance Commissioners, NAIC. This report was commissioned by the commissioners to get a pulse on business owners, particularly small business owners, and their respective insurance buying habits/priorities. While this report contains a veritable treasure trove of data, to the delight of the info geeks among us, the portion I am highlighting addresses the size of small business when they choose to purchase different types of business related insurance. The survey contacted small business across a broad related spectrum, specifically with 100 or less employees. Over 90% of business contacted had property and liability insurance. Of these, only 48% had some type of commercial auto insurance. This suggests two things, either these business didn't have any type of commercial auto exposure, or they were relying on their personal auto coverage to get them by. While I'm not going into the areas...

Due to the ever changing work force population, i.e. increased immigration coupled with an aging population, a small business owner's Employment Practices Liability (EPL) loss exposure has significantly increased in the past few years. When you combine this with the ever expanding legislation related to this area, which has increased EPL related discrimination claims exponentially, the small business owner faces a daunting task to minimize their exposure. For example, an employer may be responsible for a supervisor's sexual harassment of another employee, even if the employer was not even aware of it in the first place. The major types of EPL lawsuits are categorized as - Discrimination, Wrongful termination, Sexual harassment and Retaliation lawsuits. These aren't mutually exclusive either. An employee can allege that a particular situation involves more than one employment related offense. As I discussed earlier, due to increased legislation in this area, the prec...

In the previous post I identified personnel loss exposures and specifically identified 3 groups; individual employees, owners and managers, and groups of employees. I had pointed out that besides the standard insurance risk management, as related to property and liability, it was also important for the small business owner to focus in on personnel related loss issues and the potential ramifications related to their loss. The first step in analyzing this exposure would be to identify your personnel and their particular exposures to loss. There are many different causes of loss, from death, disability and resignation to retirement and workplace hazards. Once you have identified the actual possible causes of loss, you would then proceed to figure out the possible financial consequences involved with that person, or persons, loss. The consequences can include the loss of the value the employee contributed to the organization, the cost of replacing that employee or employees, and the...

In the past we've discussed property and liability loss exposures and ways to forecast and prevent them. In this post I would like to discuss a loss exposure not often identified by the small business owner as an insurance related item, personnel loss. It's easier to just dilute this exposure down to 3 different categories - individual employees; owners, officers and managers; groups of employees. As you have probably realized by now, we're addressing the specific issues and problems that can arise when the loss of any of the aforementioned becomes a reality for a business. The first category, individual employees, relates to someone in the company that performs a unique role within the organization that is not easily replaced. This could be someone such as an engineer with specialized skills that relate specifically to your business. The next category, owners, officers and managers, obviously relates to those in a management position involved with the day to day tas...