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Using Insurance As A Critical Risk Management Tool


Key Takeaways

In the previous post of this four-part series, we established risk management as an essential part of a business’s success. This post focuses on how leaders can use insurance as a tool instead of a fallback, per se. Unfortunately, many people think that insurance and risk management are the same things — but that’s not the case. Let’s talk about how they work together and why your leadership role plays a vital part. 

Know Your Insurance Policies 

It’s too familiar for a business to file an insurance claim only to find out that their policy excludes a specific risk or that the company doesn’t have enough coverage for damages. As a leader, you can reduce the risk of unexpected exclusions by knowing your insurance policies. The more due diligence spent reading and understanding your policies, the less likely you will be unpleasantly surprised during the claims process.

Insurance policy planning isn’t just about picking basic coverage and hoping for the best. Instead, you and your commercial insurance broker chose your policy or policies for a reason. In addition to knowing what your policy does and doesn’t cover, you must understand why you have that policy in the first place.

The reason for purchasing coverage is typically to address specific risks to your business, which is why our Founder Shield team customizes plans for our clients — tailored coverage.

For example, a general liability insurance policy helps protect your business from the financial risks of lawsuits if your business is found negligent. Cybersecurity insurance, on the other hand, lowers your financial risk in case hackers or identity thieves access clients’ personal information.

Both of these insurance coverages address specific risks to your company. If you need clarification on what risks your insurance policies address, ask your insurance broker to review your policies with you. Like other professionals, our brokers are happy to explain your policy. In fact, most have a dozen claim examples to share, so it actually brings the policy to life. Our brokers know that insurance buying is more than a mere tick on your to-do list; we are your partner in making it make sense.

The Role of Insurance in Risk Management

You’ve read your insurance policy. You know what risks it addresses. Now the question is, how does insurance play into your overall risk management strategy?

Many business leaders believe insurance is enough of a risk management strategy. However, insurance is just one piece of your risk management puzzle.

Relying solely on an insurance policy to protect your company’s financial interests is a short-sighted approach to risk management. Instead, your insurance policies should work with other strategies to protect your business in layers.

You might already have some risk management plans. Some insurance policies even require businesses to have certain types of risk mitigation to qualify for coverage. Some common types of risk management plans and strategies include:

  • Employee training and continuing education
  • Following recommended workplace safety standards and procedures
  • Investing in modern computer systems and networks
  • Working with professional consultants, such as legal or financial teams, to identify and mitigate specific risks
  • Preventing theft with security measures
  • Emergency preparedness in the workplace

Let’s better understand how insurance works with other risk mitigation efforts by looking at a cybersecurity example. Say your company regularly collects and stores customer payment and identifying information. You’ll need to find ways to keep this data safe from ransomware and other cyberattacks.

You can stay cyber-safe by using multiple risk management strategies, such as:

  • Training your employees to handle sensitive customer data and avoid phishing attacks properly.
  • Backing up data to secure offline storage space.
  • Keeping computer and network systems up to date.
  • Using the latest secure data protocols for collecting and storing data.
  • Creating a plan to retrieve data if a breach occurs.
  • Investing in cybersecurity liability insurance to protect from lawsuits in a data breach.

In this case, insurance is one of many strategies your business uses to reduce the chance of cyberattacks. Vulnerabilities often come in a multi-tiered approach, so risk management must be ready to ward off these sophisticated threats.

Standard Insurance Policies Many Businesses Need

Looking at all the different commercial insurance policies available could easily make your head spin. Depending on your business, you may need industry-specific coverage to address risks in your industry. 

Fortunately, you don’t have to navigate commercial insurance alone. Most business leaders find it easiest to work with a trusted commercial insurance broker to find the right coverage. A broker will review your business’s specific risks and make customized coverage recommendations.

Let’s look at everyday coverages that benefit nearly every business, regardless of industry. 

General Liability 

General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.


Whether it’s a devastating fire, natural disaster, or burglary, property insurance responds. This policy reimburses companies for direct property losses, supporting recovery and momentum.

Errors & Omissions 

Professional liability, also known as errors and omission (E&O) insurance, covers companies in third-party or client lawsuits claiming substandard work or service. Work errors or oversights, missed deadlines, budget overruns, etc., often result in costly cases — but E&O insurance responds to these mishaps.

Product Liability

Companies offering tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Consider McDonald’s notorious “Hot Coffee” case in the 1990s, for example. No matter if the claims are grounded or not, this policy covers defense fees and settlements.


Cyber insurance protects companies from third-party lawsuits relating to electric activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.

Directors & Officers

Shareholders, competitors, investors, etc., can sue a company’s directors and officers, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business.

Workers’ Compensation 

When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while keeping companies running smoothly.

Employment Practices Liability

Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects companies against lawsuits related to employment practices.

Issues Due to Lack of Insurance Policies

Not having commercial insurance — or not understanding your policies — can lead businesses to disaster. The wrong coverage or unexpected exclusions might expose your business to unnecessary risks.

Reading your policy and working with an insurance broker can help you avoid common issues from lack of insurance coverage, including:

  • Losing a sales contract because of exposure to a risk
  • Paying for lawsuits out-of-pocket
  • Expenses from a disaster cause the business to declare bankruptcy

Uncovered Exposures Disrupt Sales

Not having the right insurance can cause financial losses. Many business leaders know the risk of not having insurance if a disaster strikes — they might have to cover the cost of damages with business funds. This scenario could put the business in financial duress.

However, there are other ways inadequate coverage could financially harm a business. Your company might lose out on essential contracts or sales because of insufficient insurance coverage.

For example, your business is excitedly awaiting a large government contract. In the final stages of securing the agreement, the deal falls through. The reason? The agency requires cyber insurance coverage, and you don’t have it. The agency decides to work with your top competitor instead.

Ensuring the right type of insurance robotics coverage could have clinched the deal in this scenario. Seize substantial sales opportunities for your business by guaranteeing the appropriate coverage.Securing the right coverage could have been pivotal in clinching a contract in such scenarios. Seize significant sales opportunities for your business by leveraging the benefits of insurance robotics to guarantee the appropriate coverage.

Expensive Lawsuits Stall Business Growth

Even if your business has the cash to afford potential risks, not having enough insurance could slow business growth or stall operations.

Let’s say your business receives a lawsuit and has to cover $500,000 in legal fees, damages payments, and court costs. Fortunately, your business has the cash to cover these expenses. You pay the price of the lawsuit out-of-pocket without noticeably damaging the company’s financials.

But what could that $500,000 be used for if your company had insurance to cover the lawsuit?

That’s half a million dollars your company can’t use to develop new products, expand to new locations, or market your business. This setback might slow business growth, allowing competitors to eat away at your market share.

Damages Cause Business Bankruptcy

The worst-case scenario for businesses without the insurance they need is bankruptcy. By not addressing potential risks with insurance, a company could quickly go under due to legal, reputation management, and physical repair costs after a disaster.

Most businesses need help to come back from bankruptcy. Your company could shut its doors if you face an unexpected disaster without the right insurance coverage.

Understand Common Pitfalls for Insureds

Besides ensuring adequate coverage, your broker can also help you make sense of common pitfalls in insurance. Business owners often overlook two standard coverage aspects when purchasing or reviewing insurance coverage: endorsements and exclusions. Let’s examine how each works and how you can avoid them.


Endorsements are attachments to your commercial insurance policy that change the coverage of your base policy. Also known as riders or clauses, endorsements help business leaders customize insurance coverage to meet their needs. 

Endorsements are vital because they let your insurance coverage keep up with changes to your business. Common endorsements add extra coverage to a policy, such as increasing the coverage limit for a particular risk or type of coverage. An endorsement might also remove coverage or exclude specific risks.

If endorsements customize coverage, how could they be an insurance pitfall?

For example, a business owner purchases a policy and uses an endorsement to reduce liability coverage to lower their premiums. The problem with endorsements is when a policyholder doesn’t read or understand their policy. In this example, the business owner didn’t pay attention to the amount of coverage now offered by their policy. When an accident occurred, they were unprepared for the lower coverage amount and faced enormous legal costs not covered by their policy.


Exclusions are one of the most misunderstood parts of an insurance policy. Business leaders often need to read their policies more thoroughly. They must do so to avoid missing the exclusions of their policies. When it’s time to file a claim, they’re blindsided. They didn’t realize their policy doesn’t cover a particular type of peril.

For instance, your financial services company has a directors and officers (D&O) policy to protect the business from claims made against your directors. The policy has an exclusion for fines, penalties, and punitive damages. One of the directors makes a filing mistake and receives a hefty fine from the Securities and Exchange Commission (SEC). Your D&O coverage won’t cover the penalty, leaving your business to foot the bill. If you have not read your policy and all the exclusions, this could be a costly shock.

The best way to prevent unexpected (and unpleasant) insurance surprises is to read your policy thoroughly.

Understanding the details of what coverage your company needs can be confusing. Founder Shield can help protect you and your company from risks your industry faces. Reach out to us and we’ll walk you through the process to get the right policies for you.

What to know more about commercial insurance? Talk to us! Please contact us at info@foundershield.com or create an account here to get started on a quote.

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