Using Insurance to Manage Risk

One of the most common ways of managing risks is to use insurance. Once you have categorized your risks, you need to seek insurance on those risks that can be significant in your operations, but have relatively low probabilities of occurrence. Insurance is used to share losses associated with property, income, and liability. You can either purchase separate policies for each type of loss or you can use a commercial package to cover a range of losses. Commercial packages are usually cheaper than a collection of separate policies.

So what kinds of insurance are available? Well first you will use property insurance to protect your assets against damages and losses from various events (floods, fire, etc.). Property insurance with "all risk" is usually preferred since it's sometimes hard to predict what kinds of events will occur. Crime insurance is sometimes added if you have assets located in areas subject to theft and vandalism. General Liability insurance is used to protect your organization against claims from injured parties. Product Liability insurance is used to protect against faulty workmanship. Professional Liability insurance is used to protect engineers, CPA's, and other professionals against liability due to errors and omissions in their work.

If your business is subject to major interruptions from floods, hurricanes, and other natural events, than you may want to consider Business Interruption insurance. Business Interruption insurance provides your organization with a base level of cash until you can get up and running again. If you have key personnel that are important to your organization, than you should consider life insurance on these employees. Finally, if you have concerns that your separate insurance policies may not cover all of your exposures, than you can execute an Umbrella Policy to catch the unique items not covered by other policies.