Risk management

Purchasing risk protection insurance is a way of reducing the financial impact of a business interruption, loss or damage to a facility or equipment. Insurance doesn't actually reduce your business' risks. It simply provides coverage and protection against the losses associated with some risks.

Typical risks you can insure against could be: fire, theft, vandalism, workers compensation, legal costs, protection from injury or property damage to a third party, or business disruption.

Types of business risk insurance

Commercial business risk insurance typically covers five basic areas:

• property insurance
• crime insurance (including data breach cover)
• business interruption (or business continuity) insurance
• liability insurance
• equipment breakdown insurance

Some business insurance you must have by law. For example, commercial motor insurance, professional indemnity insurance for certain professions, or employers' liability insurance - designed to cover compensation or legal costs arising from neglect or breach of duty.

A business interruption policy can help insure against loss of profit and higher overheads resulting from, say, damaged machinery. Other types of business insurance exist, such as key man insurance, credit insurance, money policies, legal expenses, etc. Employers can even buy life insurance or private medical insurance for a whole group of employees.

How do insurance companies mitigate risk?

Risk insurance provides a level of financial compensation in the event of a loss. Insurers only pay the compensation if the loss is insured by a valid policy.

Insurance companies increasingly want evidence that business risk is being managed. Before they provide cover, they may want proof that you have processes in place to minimise the likelihood of a claim. You can ask your insurance adviser for advice on appropriate processes - see how to choose an insurance adviser for your business.

It is important to review your policies regularly to determine if they adequately cover your potential losses. To review your policy, you should:

• carry out regular risk assessments to identify potential hazards to your business
• use business impact analysis to quantify potential impacts
• examine the level of policy and the coverage you currently have
• consider all the risks and their outcomes to determine the required level of insurance

Having the right policy in place can be crucial for the survival of your business, but keep in mind that some costs - such as reputational damage - may be uninsurable.