Risk management involves identifying threats to business and creating ways to reduce their impact. The goal of risk management is to use knowledge about potential losses and risks to avoid, reduce or transfer the risk before unexpected events occur. Risk exposure varies widely from industry to industry and even from business to business within the same industry.
Unexpected losses can derail even established, well-run businesses. When used in combination, risk management and insurance provide business owners with a powerful underpinning of security.
Adopting good risk management techniques will have the added benefit of improving your company's operations. It can also distinguish you from your competitors. Nothing is more appealing to prospective clients than a firm that is quality-driven.
The insurance industry has developed a simple six-step process to manage business risk:
Insurance policies are not on anyone's top 10 list of reading material. Most people only read their policy after a loss. Unfortunately, they sometimes find inaccuracies or exclusions that adversely affect the outcome of their claim.
Reading policies ahead of time helps avoid this unpleasant surprise. The insurance policy is divided into 6 main sections. Knowing these sections and what they contain will help you quickly move through your coverage contract.
The primary risk areas that are insurable are:
Your first line of defense is a solid insurance policy with appropriate coverage, which will both pay a claim and defend you against any liability exposures.
Liability exposures have many sources. The vast majority deal with bodily injury or property damage that may be caused by your company operations or the products you produce or sell.
You also want to protect your own property, including buildings, contents, inventory and mobile equipment. Other special forms of property include money, property of others, electronic data processing equipment, data and employee property, such as tools. Most property exposures can be covered by insurance.
Automobiles are one of the largest liability exposures you face. This includes your employees driving their vehicles on company business and the use of rental cars. Here are a few risk management techniques that should help you reduce exposure:
Workers compensation covers medical expenses, retraining and loss of wages due to a work-related accident. Each state has its own workers compensation laws and systems. In Washington state, the state acts as the sole insurer for workers comp.
You can take the following steps to lower your premium:
Business owners often opt-out of workers comp to save money. This may not be a wise move, because owners have more exposure than they may realize. Plus, workers comp coverage can act as a foundation for health and disability benefits that are otherwise very expensive.
Washington workers compensation excludes important marine exposures, including working on a ship, acting as a crew member or even working in some dockside situations. If your company is exposed to any of these situations you should consider additional marine policies.
You should also make sure that your independent contracts truly fit that classification. If it is determined that your independent contractor is actually an employee, you are subject to workers comp premiums, claims and potential penalties.
With our ever expanding global economy, more and more companies have international exposures. This can be as simple as importing and exporting, or as complex as offshore manufacturing or establishing offices in foreign countries. Not all exposures in the international arena are covered by insurance. This is a key area where risk management and insurance should be used together.
Here are a few areas unique to doing business internationally:
SBA podcast. Business disasters can occur at any time and any place. Put your emergency plan in place before the disaster hits.
Part of SBA's Management and Planning Series discussing the life insurance needs of a small business owner and how important business life insurance is when planning for the future of business.
Great information about the patenting process.
An extensive collection of risk management publications, programs and tools, including a Resource Library organized by topic, audience, and type of resource.
Part of SBA's Crime Prevention Series providing entrepreneurs with measures to safeguard against employee dishonesty, shoplifting, bad check passing, burglary and robbery.
Toolkit to help small business owners manage security and privacy challenges. Includes tips for preventing hacking, phishing, data theft and employee theft. Offers guidance on whom to notify in the event of data infringement.
AnnualCreditReport.com is a centralized service for consumers to request annual credit reports. It was created by the three nationwide consumer credit reporting companies, Equifax, Experian and TransUnion.
Learn how to read and understand your insurance policy.
AskTheLawyers.com™ is a unique online interactive legal service available to individuals and businesses. AskTheLawyers.com provides access to attorneys in your area who are available for an initial online or telephone consultation for no charge.
Easy-to-use questionnaires help you assess your organization's quality control standards.
The Forms & Agreements portion of BitLaw provides access to forms and example contracts relating to intellectual property and the Internet.
Open for Business Continuity Planning Tools" free online training from DisasterSafety.org." provides a toolkit to help business owners assess risk for a variety of natural disasters, conduct a business impact analysis, and develop a recovery plan.
The last three weeks of world patents free.
A discussion of the factors influencing employee theft with tips for discouraging and managing the problem (from America's Best Business Practices blog).
As a small business owner, you might think that offering health insurance coverage to your employees is beyond your reach, but it may be easier than you realize. This Guide is intended to help you find out. (Adobe Acrobat format)
Suggestions for managing retail theft. (Note: University of Missouri Extension guidesheet.)
Tips to help protect both your business records and your customers sensitive data (from Business.gov).
Get tips on shopping for insurance, information on your agency and broker, and descriptions of different types of insurance.
Learn how to establish good quality control standards, which reduce your risk of product liability.
LexisNexis is a leading global provider of content-enabled workflow solutions to professionals in law firms, corporations, government, law enforcement, tax, accounting, academic institutions and risk and compliance assessment.
Some free information and fee-based patent, trademark and email alerting.
Nolo is the nation’s leading provider of do-it-yourself legal solutions for consumers and small businesses. Our goal is to help people handle their own everyday legal matters -- or learn enough about them to make working with a lawyer a more satisfying experience.
Since 1971, Nolo has offered affordable, plain-English books, forms and software on a wide range of legal issues, including wills, estate planning, retirement, elder care, personal finance, taxes, housing, real estate, divorce and child custody. We also offer materials on human resources, employment, intellectual property, and starting and running a small business.
Theft prevention in six steps.
The U.S. Federal Bureau of Investigation.
System Administration, Networking and Security Institute: source for information security training, certification and research
CERT Coordination Center: a center of internet security expertise.
Guide developed by the Independent Insurance Agents of America.
Trademark databases and free domain name searching.