I was asked recently if Bolster Risk Management can help businesses directly with fleet and plant or liability insurance. The short answer is no, we don’t do commercial insurance. However, I’ll open up that response in more detail below.
Risk management for a business can extend beyond fleet & plant. You may already have a plan in place, or I may touch on things that you hadn’t considered before. This article then will look at Business Insurance, which is viewed in a similar way as personal insurance – it is all about the body, the life and death, accident and illness of the body.
- Business Insurance covers the body for business continuity
- Risk management extends to covering the largest company asset, the workforce
This is a different form of risk management. Essentially, it is for directors and business owners. It can be especially useful if there is a Shareholder agreement between different parties.
An example might be with a life (or permanent disability) insurance policy that is owned by the business, on a director-shareholder. If a director dies (or is totally incapacitated), there is normally a buy-sell agreement between owners. This agreement allows the other party to buy out the deceased (or injured) person’s portion of the business. However, having the funds to buy out the deceased person’s share can cause problems, especially if there is business debt involved. A policy can be put in place to help facilitate that buy-sell agreement.
Another example where the business may choose to own a policy is on a Key Person, or essential employee. This maybe for a GM (General Manager), CFO (company accountant), or key salesperson. If that person was suddenly out of the business (due to death, illness or accident), how long could the business survive? What risks are there, with that person’s sudden absence? What impact would that event have on the operational performance of the firm?
To change that example slightly, what if the business partner was permanently disabled? How does the buy-sell agreement work then? The same issue may exist for the other partner, how to fund that buy-out? A policy owned by the business would solve that issue.
This is where a risk management strategy can be applied. Using an insurance product, the business may get a locum (someone to replace the Key Person) for a short period or replace that employee completely. Both options can come with significant direct and indirect costs to the business. An insurance policy can mitigate that business risk (and those costs), by allowing business continuity.
Business expenses cover, on the other hand, helps with the costs of running a business while the injured person gets better. This type of cover is typically more appropriate for a sole trader or small business. It acts like an income replacement or income protection product, paying a monthly benefit to the business to cover the business expenses. It allows the sole trader to recover, without fear of losing their business. As small businesspeople know, even having a few days out of their business can have dramatic consequences. The business expenses cover relieves some of that burden.
For any business, the key risks are centred around continuity of operations, even during the worst of times. Different insurance products help to mitigate different risks. What would happen in your business if your business partner suddenly died of a heart attack? How much would the business suffer?
Risk management extends to covering the largest company asset
I appreciate that at this time, most firms are trying to tighten their operational ‘belts’, so adding unnecessary costs may be counter-intuitive. However, there are upsides to giving your employees greater rewards, the benefits swing both ways.
Appreciating your workforce can be viewed across four areas:
- Kiwisaver – increased contributions demonstrate a commitment from the employers to their workforce. This can be especially relevent if your workforce are older (and therefore have a shorter time to invest in KiwiSaver).
- Health & medical insurance. There are a range of options that can be low cost, but again show to the employees that they are important There is statistical evidence demonstrating employees with health insurance spend less time away from work and are more productive. They also have faster access to healthcare which gets them back to work sooner.
- Life insurance and income protection. Again, this may seem counter intuitive. But we know that families who lose their primarily earner can be devasted. Having a small employee life insurance policy in place can alleviate that financial burden. Income protection has been shown to help employees return to their employer. Income protection will pay a portion of the employee’s salary while they recover from illness. By reducing the financial burden during recovery, the employees are more likely to return to their employer once they have recovered.
- Workshops and simple money-matters events with staff. Bolster Risk Management have run a few sessions with companies where we make ourselves available to staff so that they can discuss their money concerns (KiwiSaver, insurance, mortgages…). It is part of our commitment to try and help people with their financial literacy.
Businesses can be overwhelmed by risks. That said, it is the director’s legal responsibility to manage those risks for their stakeholders. There are various tools and products that can help mitigate different risks, which we’ve identified above. As with all things insurance, don’t try and cut corners by doing it yourself. Use professional help to get you answers specific to your situation.