How to evaluate your small business risks
Identifying and evaluating risk is a crucial aspect of business management. If risks aren’t appropriately managed, companies can face consequences which could determine not only the bottom line, but in some cases, its survival.
Insurance is designed to help you manage risk, but it often becomes complex especially for owners of Small to Medium Enterprises (SMEs) to determine their level of coverage.
“Many business owners don’t expect they’ll need to make an insurance claim,” QBE General Manager, SME, Aaron Gavin explained.
“As a business owner, you’re often more worried about the bigger picture. Sales or credit control are often deemed as serious risks rather than the less visible or frequent events such as a fire or critical processes or items breaking down that need repairing or replacement,” he said.
“Claims are never frequent events, so insurance isn’t front of mind. But they’re often costly and in some cases, can halt businesses.”
So how do you evaluate the risks of your business and ensure you’re correctly covered?
Identify what’s crucial
You can evaluate your risks by understanding what’s crucial to run your business. For example, it may be fundamental that your machinery or equipment runs smoothly.
It’s also key to consider all factors that could affect the critical activity, such as a power failure or the business interruption costs if equipment breaks down and a business is forced to close its doors until it’s fixed or replaced.
Consider the costs for a café or restaurant owner if their fridges or cool rooms break down, or if they suffer from an external disaster like a power failure. Not only might they have to close business until the fridges are working, but they may have to throw out all perishable food items and replace the wasted produce.
Based on your occupation, an insurance policy, such as public liability, may be crucial to protect your business.
Consider the costs for a small construction business if one of their electricians completed a successful job at commercial property, however a few months later, due to some work that the electrician carried out, a spark went unnoticed and ended up causing a small electrical fire, setting the premises on fire.
Understand your risk appetite
A useful way to evaluate the indispensable aspects of your business is to decide how much risk you’re willing to take on.
By attributing a dollar value to certain risks and trying to understand the financial burden each may deliver, you can better determine the potential effect on your cashflow and ultimately, the bottom line.
“The SME space is very diverse,” Gavin said. “But if business owners understand external impacts such as inflation and exchange rates on replacing goods, products or processes critical to the running of their business, they’re better placed to understand the changing value of their business assets.”
Evaluate and manage
A key part of the evaluation process is deciding how you will manage the risks after they’ve been identified and you’ve assessed your appetite, according to Gavin.
“That means essentially considering if something negative does happen, how will you pay for it?” he said.
Consider the costs of a cyber-attack for an e-commerce or online business, spanning from public relations consultations and forensic investigation to knock-on business interruption costs while the website is down. And perhaps crucially, the invaluable cost of tarnished reputation if customer’s data is breached.
It’s only after the process of evaluating your risks that you can make informed choices on the type and level of insurance coverage you’ll need for your business.
Talk to an expert broker
As business insurance experts, brokers can find the policies that best meet your business needs. How do they work? They’re best described as licensed individuals or firms that serve as intermediaries between insurers and business owners to negotiate insurance policy contracts. Brokers are often viewed as professional trusted advisors and can offer strategic risk management for business. So how do you find a good one?
How to buy business insurance
Business insurance is commonly bought through brokers. If you don’t have a reliable personal recommendation, the National Insurance Brokers Association (NIBA)* can help you find an accredited broker.
When you’re choosing a broker it’s wise to check their credentials and determine whether they’ll be a good fit for you.
QBE’s Small Business Pack^ is available direct to a range of small to medium businesses, including trades, hospitality, retail and professional services. If you know what you need and are ready to buy, you can apply for the Small Business Pack online.
If your business risks are a little complex or you’d prefer an expert to take care of your insurance needs on your behalf, you may prefer to contact a broker. If you don’t have a reliable recommendation, the National Insurance Broker Association (NIBA)* can help you find an accredited broker.
*The brokers on this site are not employees or agents of QBE, but are independent entities. QBE is not responsible for any advice provided to you by any broker on this site. Any such advice is the responsibility of the broker concerned.
^ This is the QBE Business Pack Policy Wording (QM163).