Wednesday, March 26, 2008
Understanding the true value of Business Insurance
Insurance is widely regarded as a “necessary evil” and often purchased out of necessity to satisfy the buyer’s client in a business transaction, rather than for protection. It is only when the insured business actually has a claim that the real value of the insurance “relationship” becomes clear.
When purchasing insurance the buyer should take into consideration several factors:
1) The premium/price.
2) The experience of the broker/agent to represent you.
3) The appropriateness of the coverage to protect against the insurable risks faced by the business.
4) The license status and financial stability of the Insurer.
Unfortunately I would guess that 80% of insurance buyers consider item 1 above and rarely take into consideration 2, 3 or 4. Here are some interesting facts from first hand experience:
a) The premium/price is not always what it may appear to be at face value. Please explore it closely and ask your insurance adviser how it may be affected upwards or downwards by features within the policy. This is after all a contract you are considering entering with the Insurer, you should read it and understand it.
b) The broker may place 70% or more household and personal automobile insurance plus coverage on several small businesses. It may not possess the knowledge required to advise you on your business insurance needs. If the broker is a personal friend, what will you do when you have a claim and you discover that your friend really did not put your coverage together properly as he did not understand the business risks you face?
c) Not all insurance policies are the same. Every policy contains conditions, limitations and exclusions that may eliminate or certainly reduce the coverage you feel you may have. Please make sure your insurance adviser explains your coverage to you properly as to how and why it suits your business’s needs.
d) Most insurers have to be either Provincially or Federally Licensed to conduct business in a Province/Canada. In very rare cases exceptions are made where coverage is not otherwise available domestically, subject to strict declaration procedures the broker is required to follow. Most insurers are also usually financially rated by a recognizable Rating Agency, such as A.M. Best Company or Fitch Ratings. It is important to review the insurer rating and if it is anything less than Best BBB+ for example, we suggest you ask more questions about the financial stability of the insurer.
e) If you plan on doing business outside of Canada involving the actual presence of your operations, assets or staff in another Country including the United States, your Canadian Insurer may not be permitted (or admitted) to do business in that State/Country. Usually foreign nations (including the United States) have specific rules and regulations governing insurance and failure to pay attention to these rules can lead to fines and/or imprisonment. Inform your insurance adviser if you intend to expand your operations into a different country so they can inform you appropriately.
There is far more that can be said under each of the subjects discussed here. Hopefully I have said enough to get you thinking about how you go about your insurance purchasing so that the next time you are looking for insurance on your business, you consider coverage, insurer financial stability and service as well as premium/price in your overall decision.
So be careful, the True Value of what you ultimately purchase is not represented by the premium/price you pay. In fact, you could pay a higher premium/price than the lowest proposed premium/price thinking you are getting better value, but in actual fact may be getting far less out of the arrangement.
Thanks for reading my blog, I hope it helps you.