Anyone for blackjack? How about a few spins on the roulette wheel? Or a bet on your favourite sports team for this weekend’s game? Gambling, in moderation of course, can be a fun pastime which gets the juices flowing and enables banter with friends and colleagues.
How is insurance different from gambling?
Think about it. You promise to pay someone (usually an insurance company) some cash (a ‘premium’, payable in instalments) related to some ‘event’ which may or may not occur in the future. If that event occurs, you suffer some loss and the insurance company compensates you for that loss. If the event doesn’t occur, the insurance company gets to keep your cash.
How is this different from placing a bet on the name of a newborn member of the royal family? Or next week’s weather? The difference is that, when buying insurance, there must be the risk of some ‘loss’ – what lawyers call an ‘insurable interest’. That loss can have serious consequences and is something you want to avoid. (No, the heartbreak of seeing your local team lose does not constitute a ‘loss’ for these purposes!)
Your business faces a whole host of risks which can have devastating effects. Understanding and managing the risks is important but achieving the right balance can be tricky. Some businesses neglect to buy insurance with catastrophic consequences and others are ‘over-insured’ resulting in waste.
Tips for managing your insurances
You may want to take advice on your approach to insurance and here are some quick tips:
1. Think broadly about your risks: Could your customers experience harm? Or the general public? Or your directors or shareholders? Or your employees or vendors? What about your facilities or assets? You may need insurance as a matter of statutory compliance or because it is required by contract or constitution. You should thoroughly review your needs.
2. Get expert advice: No two businesses have identical insurance needs. Insurance contracts can be complex, and an expert can ensure you are properly protected. Choose your expert wisely since they tend to specialise by industry or by the kind of coverage.
3. Shopping around: There are usually many providers of similar insurance policies, often competing on price. Always consider a selection before deciding.
4. It’s not only about price: For complex policies, especially in business, there may be specific items you want to insure against. Be diligent about reviewing the entire contract and pay attention to different charges, types and levels of cover, ‘cooling off’ periods and how excesses are calculated.
5. Already have insurance? You can drive prices down by taking a cheaper quote to your existing provider. They may be willing to beat or match your quote immediately or when you need to renew.
6. Consider different ways to buy: You may have an insurance broker or financial adviser who should be proactive in assessing your needs and coverage. Banks might offer this service and there are numerous comparison sites which help you evaluate online insurers. Each channel has advantages and disadvantages, but it is usually best to work with someone who really understands your business and goals.
7. Answer the insurer’s questions accurately: Sounds obvious, but many claims are unsuccessful due to errors or a lack of proper documentation.
Ready to consider your insurance coverage? The starting point is to assess your business goals and the main risks you should protect against. Your accountants are uniquely positioned to support you and then ensure you access the right coverage from the best possible providers.