Risk Management In Your Business
It’s no secret that previous claims may leave you paying more for your insurance. Business insurance providers do not generally offer a no-claims discount in the same way that you often see with car insurance. However, a heavy claims history may negatively impact your insurance premium. Worse still, with a truly haphazard approach to safety, you may be refused future cover. Reducing your likelihood of claims through a careful risk management strategy can help.
Risk management in business is defined in two steps:
1) Forecasting and evaluating financial and physical risks
2) Identifying and implementing procedures to avoid or minimise their impact.
Advantages of a solid risk management strategy include:
- Protecting the reputation of your business
- Increasing financial stability
- Decreasing the opportunity for accidents
The first step in using Risk Management to prevent Liability claims is laying out your potential risks and addressing them.
Four Types of Risk Management – Building your Strategy
After the risk identification process, there a four possible management routes:
One of the most obvious answers to any risk management strategy is avoidance, also known as “just don’t do it.” It works quite well for many potential risks. However, sometimes you miss out on the gain of accepting those risks. Similarly, it is not possible in every situation. If you decide you cannot avoid the risk, consider the next three management routes.
Risk reduction means to either reduce the severity of a potential incident or the level of risk. For example, a wet floor sign can significantly reduce the risk of injury through slips. This is a sound risk management strategy in situations where the action is necessary. For example, a floor may need to be cleaned during opening hours as an unattended spillage is unsanitary and a slipping hazard in itself.
Risk sharing is often described as a transfer of risks to a third party and might refer to an insurance policy or other agreement.
You may also share the risk with another third party or across an entire group.
All key risk indicators that are either not avoided or transferred to a business insurance policy are Retained Risks. Even if you reduce said risk, there will usually be tolerable levels of residual risk. These are usually unavoidable.
For example, returning to the wet floor example, you can reduce the risk of slips with wet floor signs. You may also reduce risk by not cleaning during business hours. However, sometimes clean-ups may be necessary while open to the public. The only way to avoid the risk of anyone slipping would be to never open your doors. There will always be a residual risk of slips, trips, and falls caused by factors you are unaware of. As long as you take reasonable measures, the residual risk is tolerable.
Self-insurance also falls under Risk Retention. In some cases, risk retention is cheaper or more tolerable than the measures needed to rectify it. Likewise, insuring the risk may be more expensive than covering the losses yourself.
Risks to the Public and Employees
A risk management strategy can help prevent Public Liability and Employers Liability claims. Businesses that are open to the public or have staff on-site need to conduct risk assessments. These will identify general and specific hazards that put people at risk.
Common causes of both customer and employee injury include slips, trips and falls.
Other causes of injuries might include:
- Muscle strains and Repetitive Strain
- Objects falling
- Inhaling toxic fumes
- Continuous loud noise exposure
Risk of Physical Products
When selling physical products, quality control is necessary to help prevent compensation claims. As such, a risk management strategy must be formulated around the products you sell.
Should someone suffer injury, property damage, or even death caused by your product, you could be liable. In such cases, a few parties may be found responsible for damages:
For example, you are a small business selling organic skincare products online. When running a risk assessment, allergies stand out as a major hazard. As such, you must provide a complete list of the ingredients on the packaging. Similarly, testing your products for irritants will reduce the risk of claims. A rigorous risk management strategy can protect both your reputation and pocket.
Other items that pose a significant risk include:
- White label products without a clear line of production
- Electrical goods
- Cleaning products containing hazardous ingredients
- Hair and beauty products
How does my claims history impact my business insurance premium?
If you drive a car, you will be aware of the negative impact that a bad claims history can have. While this is not as clear cut with business insurance with no explicit “no claims discount”. Multiple claims or one huge claim could still have a lasting impact on your premium.
Individual insurers will have their own processes of how premiums are calculated. Typically they will be based on both:
- Their experiences with similar businesses
- Their experiences with similar risks or exposures
Businesses that can demonstrate a high level of risk management are more desired. As such, more favourable premiums may be secured. Meanwhile, businesses with a poor claims history, or who pose a high risk, may be either rejected or face high premiums/ excess levels.