In order to consider why insurance is an essential risk management tool for small business we need to understand the true nature of insurance. It is so well woven into our daily lives that we probably do not always recognise insurance for what it actually is. It is a risk transfer mechanism, plain and simple.
Insurance as a Risk Transfer Mechanism
In both our personal and business lives we all face a series of daily risks; some of these risks we manage ourselves in the way in which we conduct our personal lives and business and others are outside of our control.
Many of the risks that face us, for instance the risk of being sued or the risk of a financial loss in the event that our property is damaged by fire, can be influenced by us using more care but however far we go down that path there will always be the possibility of events, perhaps outside our direct control causing exposing us to financial loss.
Insurance companies provide policies in respect of many of these risks and these policies offer us a way to transfer the risk of financial loss to the insurance company for the payment of a premium.
Essentially when you take out an insurance policy you are making a conscious decision to transfer the financial risks you face to an insurance company who business it is to be a professional risk taker.
Of course you are not always in a position to decide whether or not to transfer these risks that you face, certainly in the case of motor insurance (Road Traffic Act Section 143) and employers liability insurance (Employers Liability (Compulsory Insurance) Act 1969), there is a legal requirement upon you to hold valid insurance. The legislation that dictates this is designed to ensure that employees and the victims of road traffic accidents can be compensated for injuries and illness and not become a burden on the state in the event that the person or business responsible is not in a financial position to pay any awards.
Insurance Risk Transfer for the Small Business
In new and small businesses, there is a school of thought that the cost of insurance is an unnecessary financial burden on the business and that as the business does not have much in the way of material assets the risks it faces a relatively small and manageable. This may in some part be true, however the risks to a small business from liability based risks, such as third party personal injury are not directly proportional to the size of your business and in fact the financial downside can be the same as it is for much larger and well established businesses.
The cost of possible litigation and any awards can be significant and seriously threaten the very existence of the new start and small business.
Buying insurance for your small business?
With these things in mind, you need to consider the risks that face you and your business and decide upon the types of financial risks you are prepared to accept and are able to cope with and those you are not.
A professional insurance broker can assist you in this process by making you aware of the types of insurance that are available to you business and providing you with the costs of products that are suitable for you. It is your decision, excluding any consideration for legally required insurance, which risks you choose to run yourself and those you would prefer to transfer to an insurer.
Clearly cost plays a large part in these considerations and it is for this reason that you should select a broker with experience in the market sector, who will have both a sound knowledge of the products that are available to you but also have access to specialist and cost effective insurance products designed for the small business market.
Blackfriars is an independent insurance broker that provides these services and along with our extensive range of on-line small business insurance products also offers you the opportunity to speak to a team of brokers who will be able to assist you in the decision process by providing you with a range of options for a variety of products.