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Minimizing risk by having the proper insurance coverage and risk management practices

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You can purchase business insurance for nearly every operation and risk your business faces. However, navigating the particularities of insuring your organization can seem daunting. Investing in insurance coverage is a necessary part of operating a sound business, whether your organization is for profit or not.

What is meant by insurance in this case?

The primary purpose of insurance coverage should be to insure against unlikely losses that are potentially catastrophic. Business owners need to be vigilant in protecting their businesses against worst-case scenarios. Hence it is essential to find the right coverage. As stated by the Insurance Bureau of Canada,

having the right [business] insurance is essential to surviving and thriving in a world that is full of opportunity, but also full of risk.”

Risk, in insurance terms, is the possibility of a loss or other adverse event that has the potential to interfere with an organization’s ability to fulfill its mandate, and for which an insurance claim may be submitted.

Although insurance is not risk management, it is a valuable risk-financing tool.

Insurance cannot be reviewed in isolation. It depends upon the overall risk strategy of the company, and it will be influenced by other measures taken to control risk. For example, if risk is reduced or eliminated as part of the risk control strategy, insurance costs will decline.

Some of the various insurance policies available to organizations include:

    • Business income
    • Accounts receivable
    • Commercial general liability
    • Property
    • Crime
    • Commercial automobile
    • Errors and omissions
    • Directors and officers liability

For example, property insurance can be highly effective in protecting against accidental damage to your space, unwelcome entrants, and making sure sensitive information remains confidential. However, risk management measures should be implemented. Such reinforcements as maintaining updated locks and corresponding keys or cards, secure windows, and alarm systems can minimize the likelihood of your office space being compromised. Fireproof doors, high ceilings, accessible extinguishers, along with an up-to-date fire detection system and sprinklers can stop a small flame from becoming a serious fire, if one does occur. Simple precautions such as delegating specific areas where food and drinks can be consumed away from not only secure areas, but the rest of the office space, can minimize not only potential damage to workplace materials, but also make your office less appealing to pests.

These risk management measures can improve the security of your physical space as well as your confidential materials. Reducing the likelihood of potential losses can in turn reduce the deductible owed to an insurance company, and also save time and unnecessary worry. Another example ringing true for an ounce of prevention returning a pound of cure.

An effective risk management practice does not eliminate risks. However, having an effective and operational risk management practice shows an insurer that your organization is committed to loss reduction or prevention. It makes your organization a better risk to insure. (Insurance Bureau of Canada)

Things to think of when looking for the proper business insurance

It is important to deal with a trusted and reliable insurance agent and to review the insurance coverage at least annually, and more frequently if circumstances change. It is good practice to review the services provided by the insurance agent or broker from time to time.

Read about more about these measures as well as important information regarding risk management and selecting the right insurance for your organization in the latest release (2012-04) of Finance and Accounting PolicyPro.

Jeffrey D. Sherman
BComm, MBA, CIM, FCA

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Jeffrey Sherman

Chief financial officer, author, lecturer and professor focussing on corporate finance at Atrium Mortgage Investment Corporation, Canadian Mortgage Capital Corp., Trimel Pharmaceuticals Corporation, and Anagram Services
Jeffrey D. Sherman, BComm, MBA, CIM, FCA, is a director or CFO of several public companies and has had over 20 years of executive management experience. He is the author of Finance and Accounting PolicyPro, Not-for-Profit PolicyPro and Information Technology PolicyPro (guides to governance, procedures and internal control, all published by First Reference and the CPA). Read more
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