Insuring businesses against common risks
Bad things don’t just happen to other people. It’s a truism worth keeping in mind for every business owner and manager. They need to be aware of the many risks that can threaten their company’s sustainability and their own livelihood.
In the course of a long career in business insurance, Nick Cinotti, Director of Loss Prevention for Quebec at Intact Insurance, has seen it all: devastating fires, water damage, factory equipment breakdowns, warehouse burglaries and much more. “Businesses cannot be immune to risk. And if they have to cease operations, even for a short time, the result can be serious financial trouble or even bankruptcy.”
According to Intact Insurance, more than two-thirds of companies that do not have business interruption insurance go out of business if they have a major loss. A preventive approach can save your business thousands of dollars.
Every business is unique, but some threats are common to nearly all industries. Nick Cinotti says fire and water damage are the top two risks. “Floods, water seepage into a building, and plumbing system breakdowns can cause severe damage to stores, factories, equipment and products.”
Theft is another peril that can have a serious impact. For example, a company that has its stock stolen may not be able to fulfil obligations to its customers, suppliers or creditors. That’s one of the ways business interruption insurance is important. The same goes for manufacturing equipment breakdowns that could halt production.
Of course, every business absolutely must insure its buildings and vehicles, and have coverage for legal liability, in case – for example – a customer sues after being hurt by slipping and falling on the premises. In addition, there is more and more demand for directors’ and officers’ liability policies. “D&O insurance protects executives and board members against lawsuits over their decisions, and the effects this could have on the future of the business or organization they run,” Mr. Cinotti explains.
The growing number of companies that import and export goods need to insure this line of business with a special insurance policy.
Finally, protection against “cyber risks”, like computer hacking, data theft and the financial and reputational damage that can result from data security breaches, is becoming an essential need, says Nick Cinotti.
Every business sector has its own risks, but some industries have special features that affect the insurance protection they need and the premiums they have to pay.
For example, restaurants are more vulnerable to fire because of their cooking equipment, while plumbers are at risk of causing accidental water damage. A factory that uses custom-built production machinery is more likely to suffer financial loss in case of a breakdown, because their equipment cannot be replaced in the short term. Mr. Cinotti points out: “The premium must always reflect the risk the insurance company is taking on.”
Between large and small businesses, the scale of the risk is the main different that makes an insurance policy more or less expensive. For instance, a problem in the supply chain of a multinational can have much larger financial repercussions than it would have for a smaller business. Again, the premium reflects the risk.
“Too many business owners under-estimate the importance of keeping their buildings and equipment properly maintained to avoid problems and insurance claims,” says Nick Cinotti.
For example, he tells us, in many cases the productivity of a business is highly dependent on energy, making it essential to have an efficient electrical system and uninterrupted power supply. Mechanical systems (like heating and air conditioning) in commercial buildings, manufacturing equipment in factories, and computer systems in practically any industry are vital, and require regular maintenance work by professionals.
It all comes down to another saying: an ounce of prevention is worth a pound of cure.