Insurance and Risk Management: Understanding the Connection
In business, as in life, there are risks, and identifying, controlling, and minimizing these risks is referred to as risk management. In some cases, risk management involves the potential for problems that can’t be foreseen, such as the possibility that an asteroid will break through the ceiling of a business, but most of the time, risk management focuses on known risks, such as a heating unit that has the potential to catch on fire. If you’re a business owner, it’s likely that you’ve taken part in at least some risk management around the workplace, but have you considered how insurance and risk management are connected?
Linking Insurance and Risk Management
When it comes to business insurance, most insurers will calculate rates and insurability based on a risk management assessment. Essentially, business insurers will want to have an in-depth understanding of the potential risks that exist or may exist at a business before making a decision as to whether to insure that business or not. In a sense, it’s easy to see why insurance and risk management would go hand in hand as the insurance industry can only survive by understanding the cost/benefit relationship that it has with the insured.
What an Insurer May Look For
When an insurance company is considering taking on a business as a client, its representatives will check a number of different things to understand the amount of risk involved. For example, if you run a manufacturing plant, a potential insurer may check all machinery and ask for inspection records. Likewise, since your manufacturing plant will likely have workers in it, everything from your duct work and ventilation systems to your electrical outlets will be checked to determine whether employees will be at risk while on the clock.
How to Minimize Risk
In order to be more attractive to an insurance company, and to reduce your business insurance premiums, there are a number of things you can do around the workplace. First, make sure you have your building and its systems inspected on a regular basis and hold onto the paperwork. Second, create a risk management assessment on your own to demonstrate where you see potential risks. Third, create a detailed safety protocol manual that provides useful information to employees regarding risks and workplace safety. Having this manual may show a potential business insurer that you are being proactive about risks in the workplace, thereby possibly resulting in lowered premiums.
Work With a Professional
If you’ve taken a look around your workplace and you still aren’t sure about potential risks, partner with a professional insurance and risk management consulting expert. These individuals have experience in identifying risks and working with insurance companies to get clients the best coverage options at the lowest prices. An insurance and risk management professional from a consulting firm can also help business owners in creating safety protocols and write manuals to further increase the chance of getting insured at low rates.
Andrew Rusnak is an author who writes on topics that include business insurance and risk management.