Insurance Agents, Consultation & Services @ Petaling Jaya
Although companies are constantly exposed to risk, many small and medium-
sized businesses do not have a risk-awareness mindset. That is because
their businesses have never experienced any setbacks caused by adverse
events (such as fire, burglary, accidents, natural disaster or liability suits).
The possibility of such events affecting them is far from their minds and beyond
their imagination! Usually the first time such a company encounters insurance,
like most individuals, is when insurance is a compulsory requirement of a law,
a loan agreement or a works contract. Government, banks and principals want
to protect their own interests in the company’s activities and assets, and
the company is made to pay for the insurance. That, to some extent, awakens
business owners to the idea of risk and insurance affecting their businesses.
What truly drives home the reality of risk for businesses is the direct
experience of uninsured adversity of many ordinary businesses, which go largely
unreported, and the dramatic tragedies, which make the headlines, involving
planes, ships, oil-rigs, and industries run by big world-class companies.
A risk awareness mindset is a culture of “awareness of what can do a business
harm”; understanding the nature of risk that can harm them, their clients,
their colleagues and their pockets!
The work of any company (regardless whether a sole-propreitor, or a small
business, or a large multi-national company) is to organise economic
resources (such as capital, assets, human resources, etc.) and run a business
to make a profit for the business owners. Insurance protects the company’s
“bottom line” or profits. How? By protecting the company’s assets from
damage or loss, and by keeping the employees healthy and happy. Insurance
compensates for financial losses to the company caused by accidents or other
mishaps affecting its assets and its employees, or obligations created by
public liability claims (some of these claims could be opportunistic in a predatory
business environment, requiring costly legal defense which could drain company
resources severely). Companies which are not protected by insurance have
collapsed under the weight of frivolous and opportunistic lawsuits.
There are certain common risks which apply to all business activites, such as
those affecting personnel, motor vehicles, office equipment, real property,
and public liability. In addition to the common risks, there are special risks,
which are different for different types of business activities. For example,
the special risks faced by a factory or a supermarket will be quite different
from the special risks faced by a bank, although both the businesses will have
certain types of risks in common.
The mainstays of insurance for companies to protect all its assets are fire
insurance, equipment all risks insurance and public liability insurance.
Burglary and theft risks may be a consideration. Personal accident and medical
insurance could be considered for staff. There are packaged products for
specific businesses, for example contractors all risks insurance (for construction
projects), goods in transit insurance (for transport companies), and others.
Multiple risks insurance packages can also be put together for small businesses.
When looked at in perspective, the cost of insurance adds only 1-2% of
revenue, or 0.2% of static asset values, to the cost of doing business.
This is indeed a very small price to pay to preserve the stability and
viability of an enterprise against freak incidents or accidents which could
potentially undermine the whole business. If a company is not putting aside
that sum for premiums or self-insurance reserves, it probably needs to look
closely at its governance to develop sound risk management strategies.