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Picture: 123RF/GAJUS
Picture: 123RF/GAJUS

For clients to protect themselves and their businesses, it’s essential to assess the risks, and choose insurance cover accordingly. While many types of business insurance policies offer a spectrum of insurance protection from equipment, property and buildings, to business assets, liability and business interruption insurance, your client’s business may require more than one — or a combination of policies — to suit their needs.  

As with all insurance, the cost of a policy will be determined by the risk vs the likelihood and the potential severity of any incurred loss. The premium will be based on the nature of the business, in which industry it operates, services offered, or which products are handled. 

While there are many factors that affect the costs of business insurance, there are just as many precautions and risk improvement measures that can be taken to reduce the cost.  

1. Imagine insurance isn’t there, and act accordingly

If you implement risk management measures to reduce any potential impact if a loss occurs, it can only help. Adding an armed response alarm system, implementing better stock control measures, and servicing fire extinguishers regularly are all good steps to take. Acting as if you are not insured makes for more risk awareness and encourages risk mitigation processes and measures. Insurers recognise these measures and often discount premiums.

2. Consider going out of business 

Cover these risks adequately and don’t skimp, as your client losing his entire business would be the worst-case scenario. The cost of insuring against a business burning to the ground is generally cheaper than insuring a laptop. 

3. Also consider the true costs of time and replacement value

Expensive equipment can not only be costly to fix or replace, it can also take time for a new part to arrive, which can negatively affect your client’s workflow, and consequently cash flow. Ensure that enough loss of profits cover forms part of a policy. 

Factor in adequate indemnity and realistic time periods, which will be required to get a business back to full operational level.  Make sure the real replacement costs of equipment in present-day value are correct. You can ask insurers for recommendations for who could value your clients’ businesses sufficiently.   

4. Generally, don’t sweat the small stuff 

Items such as cellphones, for example, are costly to insure because they have a high frequency of loss, which essentially pushes up the premium. Depending on the nature of your client’s business, some adjustments may be possible. 

5. Implement thorough internal controls to reduce and manage potential loss.

This should include your client making employees accountable and aware of their responsibility to the company. Stringent stock controls, good vehicle maintenance programmes, strong cash management control, sound quality controls and so on.  These control measures will all contribute to good risk management. Businesses with sound controls and good risk management attract better ratings and less punitive measures on their policies.

6. Have higher excesses in place  

This will bring premiums down quite a bit. You may find that keeping a reserve fund to cover an excess, should a claim arise, is a better system for your client. Saving money each month instead of paying a premium for lower excesses can work for many businesses. This will be determined by the financial position of the business and how your client manages internal controls.

7. Make maintenance a priority  

Insurers will often inspect the risk they are taking. Well-maintained assets that may be risks will not incur any additional improvement costs and are well-respected by insurers. Insurance companies seeing this sort of result, will be more reasonable on pricing.

8. Listen to your insurer’s advice on improvements

By making improvements recommended by your insurer, risks will be reduced, and the cost of the policy will decrease.  

9. Focus on your partnership 

As their adviser, you are a partner in your client’s journey, so it’s essential to understand your client’s business, its financials, and what kind of a risk-taker your client is. These are the factors that drive insurance costs up or down. While it’s your client’s responsibility to accurately value his business and provide you with the correct information, it’s essential to remind your clients to keep values up to date to keep cover consistent and cost-effective.

Taking these steps can help manage business insurance costs. In the tough economy, the safety net of short-term insurance is important to get right.  

About the author: Jurgen Hellweg is CEO of Western National Insurance.

This article was paid for by Western National Insurance.

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