No matter the size of your company, knowing your particular business risks is crucial. Some vulnerabilities are too big to ignore, potentially causing your company significant loss or setbacks. As we frequently advise, purchasing a general liability (GL) policy works tremendously as the foundation to a robust risk management plan. But what about the other hazards that fall outside of GL coverage? Let’s explore the gritty job of identifying risks and what to do about them.
Exposures come in all shapes and sizes — and none are created equal. What’s more, different industries face distinct vulnerabilities. The following are a handful of risk types that impact business development regularly.
Tangible or physical property is otherwise labeled as buildings, equipment, hardware, tools, etc. Many elements can harm physical property. Consider the damage from storms, fires, power outages, to name a few. Whether your company rents or owns office space, potential threats run the gamut.
Any company with one or more employees faces considerable risk. For example, businesses suffer from embezzlement, fraud, and theft every day. Although it’s challenging to predict and disappointing to expect, companies must protect themselves from these risks.
Additionally, work-related injuries are also a common threat businesses face. According to the Bureau of Labor Statistics, transportation incidents top the list. More than 150,000 employees sustain injuries on the job every year, causing lost wages and time — and over $170 billion in a direct financial loss to companies.
Employment practices are also under fire nationwide. Wrongful termination, discrimination, invasion of privacy, defamation of character, and harassment are reasons costly employment legal battles unfold.
Data breaches cost companies an average of $4 million. The worst part is that cybercriminals tend to target businesses with a revenue of under $2 billion. In fact, 87% of attacks on companies fit this description.
Keep in mind; technical risks are more than merely sidestepping cyberattacks. Think about income lost if something goes awry with an app or your reputation is damaged because of a breach. Even an electrical storm could cause issues with the devices your company depends on for business operations.
Location, location, location — it’s more than a real estate mantra. The place of a business plays a significant role in the risks it faces. Some areas are more vulnerable to crime than others. Also, consider the parts of the country that experience more natural occurrences, such as floods, fires, tornadoes, or hurricanes. Given the outrageous weather conditions that Texas and other parts of the world faced this year, geographic risks are somewhat unknown — but a vulnerability nonetheless.
Every business development team knows that executing a successful strategy depends on balancing taking a calculated risk and remaining steadfast in the safe zone. Of course, development risks shouldn’t be avoided altogether, nor should they be underestimated.
For example, businesses must create infrastructures to support high-risk projects. Furthermore, accepting specific strategic risks can ultimately result in significant profits for companies, mostly because particular risks can be mitigated successfully.
Knowing the typical risks that your company might face enables you to rate how severe each exposure could impact you. Plenty of businesses create a profitability scale to rate risks appropriately. Risk assessment isn’t anything new; lenders, investors, and companies all take on this task.
That said, rating on a scale from very likely to highly unlikely, how much of a chance do you face that a particular risk will unfold? The probability of risk is valuable information. Actuarial tables serve as a starting point, statistically analyzing risk probability clearly and concisely.
Lastly, ask how bad this damage could hurt your company? Will it tear into your finances so horribly that your business could shutter as a result? Can you ever rebound from such a severe financial hit? Few business owners enjoy asking themselves or their team these questions — but it’s necessary. Knowing your risk level is vital to achieving longevity in your industry.
Preventing risk is the next best thing to insurance. The one caveat is that not all risks are entirely preventable. However, there are many ways to avoid exposures as much as possible. Before handing out elbow pads and putting bumpers on the sharp corners, take a step back to examine your particular business risks from all angles. Consider how you and your team can mitigate these exposures.
For example, ongoing employee education and training is an excellent place to start. Provide employee handbooks, hold regular training sessions, and communicate effectively with your team. Not only does this keep your employees on the same page, but it helps prevent misunderstandings and offers guidance in emergencies. And that’s just for starters.
Keep in mind that company leadership can’t eliminate all risks from the gameboard. Some risks are inevitable — especially for high-growth companies. It all boils down to creating an environment where your team can take calculated risks with specific safety nets in place to catch anything that falls. As co-founder of Pixar Animation Studios, consider what Ed Catmull says about the relation between business risks and leaders,
They [leaders] must accept risk; they must trust the people they work with and strive to clear a path for them.
Another idea is to recruit a risk management consultant to help you identify vulnerabilities and find solutions for those exposures. Some of the most seasoned insurance specialists have “seen it all” and have a history of spotting hidden risks from miles away. Besides, teaming risks with the best insurance policy comes down to knowing that industry — and understanding the anatomy of a business, too.
Sometimes preventing risks isn’t an option, either because you’ve already followed best practices or the risk is too significant to tackle alone. In these cases, teaming with a seasoned insurance professional is your best bet. They can help tailor your coverages to meet your specific needs. The following policies are some of the most popular coverages for companies that are proliferating.
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.
Employment Practices Liability Insurance
Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. EPLI coverage protects companies against lawsuits related to employment practices.
Errors & Omission Insurance
Professional liability, also known as errors and omissions (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.
Cyber Liability Insurance
Cyber liability 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 Insurance
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.
Product Liability Insurance
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, product liability insurance covers defense fees and settlements.
Intellectual Property Insurance
Companies are often accused of infringement or face being infringed upon, putting their budget and intellectual property at risk. IP insurance covers legal fees and offers enforcement coverage, no matter how grounded or not the claim is.
An umbrella policy is an excess policy supplementing other coverages, such as general liability, auto, employer’s liability, to name a few. Companies can extend other vital “underlying” policies by using this overarching coverage to increase their limits of liability.
Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.
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