Disaster insurance

Disaster insurance

Reducing risks

business-disasterStrange concept, insurance. You hope the disaster never happens, but you bet that it will and buy insurance to recover when it does. The insurance company takes your money and bets against you, also hoping it never happens. If it happens, you win (at least on the insurance), they lose.

Flood, fire or theft, commercial liability, death or disability. You can insure against any of those disasters, but should you?

It is probably a losing bet. The insurance company has the advantage of pooling a large number of clients with the same risk and being able to more precisely calculate the odds. Your choice is to take the bet or decide not to buy insurance and accept both the risk of the disaster and the potential consequences. Maybe you can recover with the money you saved on insurance premiums.

You can, of course, reduce the risk and the costs by making good preventive choices. Quitting smoking and avoiding sky diving will reduce both the life insurance premiums and the risk of premature death.

What about business risks? Same concept.

Reduce the risk of disaster and the potential consequences by maintaining security systems, signing long-term contracts and confidentiality agreements, having back-up plans and appropriate insurance coverage, meeting regulatory and environmental requirements, hedging on foreign exchange and receivables and preparing contingency plans. Review the risk management checklist in your original Business Plan and update the status and plans annually.

Don’t wait until the fires are close enough that you can smell the smoke.

Be better. Do better.

Your Uncle Ralph, Del Chatterson

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