In today’s turbulent economy, the last thing
you want to do is expose your company to
more risk. That’s why you should review
your insurance policies to ensure coverages
are in line with exposures.
It might be tempting to save money in the
short term by reducing limits, but Karen
Miller, president of Royal Marine Insurance
Group (RMIG), says to remember that you
get what you pay for.
“I have people come back to me and say I
can get coverage cheaper from the guy next
door,” says Miller. “But more important than
price is having the proper coverages and limited liability. To know that you’ll be covered
in the event of a loss if any kind of covered
loss were to occur.”
An insurance contract is conditional, meaning an agreement to pay a specified sum of
money under certain conditions. In the event
of a loss, you want to make sure your insurance company has the capital and stability to
pay its policyholder’s claim.
Moreover, in this time of economic uncertainty, the skill of the underwriter and the
insurance company’s solvency are more
important than ever.
Smart Business spoke with Miller about
insurance and how to make sure your company is properly protected.
What are some mistakes businesses make
when assessing their coverage?
Typically, you’ll get people who will risk a
lot to save a little. In today’s economic times,
they’ll say, ‘We have to cut expenses here.’
Consequentially, there is a loss that’s not covered or the limits are adversely affecting the
company’s income statement and balance
sheet. A good risk management program
inclusive of insurance should be considered
a necessary budget tool to help forecast accidental loss and preservation of capital.
When a company becomes financially
stressed, it is less capable to bounce back
and to recoup after a loss or a series of
claims. The loss leaves it financially crippled.
It is paramount to consider your budget
don’t cut it. Insurance is one item that should
never be compromised. Cut the coffee
machine before you cut your limits.
Another issue is that people think all insurance is the same. You can’t listen to your
neighbor talk about his auto or commercial
insurance because it’s going to be different
than yours if your businesses are not alike.
Why shouldn’t companies reduce the amount
of money they spend on insurance?
When reducing costs, the sacrifice is typically made in service and value. This often
results in increased soft costs and opportunity costs. The limit is basically the dollar
amount. Your coverage is what protects
you. Typically, when premiums are reduced,
limits and/or coverages are affected, thus
impacting the ability for financial recovery.
For example, if a business is hit by a hurricane and the damage is so severe that operations have to be suspended, business interruption coverage will indemnify the company for the loss of income and ongoing operation expenses during the period of restoration. In addition, extra expense coverage
would help the business owner maintain
some or all operations at a temporary location, giving the owner the ability to service
the needs of his or her customers.
How should the administration of insurance
within an organization be processed?
Expanding on that concept, business owners need to ensure their companies’ coverages are in line with their exposures, and
that their exposures are in line with their
coverages. It works back and forth. There is
a process to analyze and identify exposures.
You have to consider who is really watching
out for the company and its owners.
If your company does not have an internal
risk management department, then you
must make sure the agent knows your business as comprehensively as you do. An
owner or C-level executive knows the business, but may be delegating insurance elsewhere. If a staff member is handling your
insurance placement, there may be a disconnect. Your C-level person had better be
communicating within management and to
Another option is to have an in-house risk
management division or person. This person
or group will be an integral part of the
organizational processes, and must be dedicated to assessing, mitigating and monitoring risks that are in line with the company’s
How can a risk management specialist help a
Risk managers are trained to identify and
analyze loss exposures. They will help to recognize areas in your business where you are
at risk and ways to eliminate and/or reduce
your exposures. The four basic areas
reviewed are liability, property, personnel
and income. Next, they will examine the loss
control techniques available for treating
these exposures and select the most appropriate course of action, thereby creating a
program unique to your organization.
There are different techniques and/or structures to a risk management program. One,
for example, will implement both risk financing and risk control measures. While risk
control is intended to prevent losses from
occurring or to reduce the severity of losses
that actually do occur, risk financing provides
ways of paying for the losses that do occur.
Some techniques of risk financing include
insurance, non-insurance transfers (such as
hold harmless agreements), retention (self-insured), or a combination thereof.
KAREN MILLER is the president of Royal Marine Insurance Group. Reach her at (305) 477-3755.