How to Protect Your Business from 6 Risks that Can Have a Devastating Financial Impact
Proactive companies have a robust risk mitigation plan that includes a variety of business insurance coverages, from property damage and IT security breach to risks impacting U.S. businesses that operate overseas.
Here’s a look at common risks with the right insurance for business owners in the U.S.
Recent statistics show that organizations lose $2.9 million to cybercrime per minute and a single data breach costs $3.86 million on average. More than ever, companies need to protect their businesses against these and other persistent threats.
If your business uses information technology (IT), whether on-premises or in the cloud, it can become a target for costly cyberattacks. Credit card payments, company websites, and e-commerce portals are vulnerable to attacks, which can lead to theft, data breaches, business interruptions, and more.
You can mitigate these risks in a number of ways, for example:
- Complying with the Payment Card Industry Data Security Standards (PCI DSS), if you accept card payments
- Cybersecurity enforcements with device and network encryption (such as using AES-256), multi-factor authentication, firewalls, and anti-malware software
- Cyber liability insurance can protect the business from high costs related to:
- data breaches & customer lawsuits
- identify theft protection
- business interruption losses
- cyber extortion
- reimbursement of investigation-related expenses and more
Commercial Property Losses
Any threat to your physical commercial spaces and their contents is a threat to your bottom line. According to NFPA, more than $ 700 million worth of office property was lost in the fire in 2018. For example, if a fire or a severe weather event like a flood or hurricane damages your building, it could halt your business operations and cause substantial revenue losses. Similarly, theft or destruction of your office equipment, inventory, or interior structures can also be very costly. If the occurrence of any of these loss events finds your business without the financial protection to quickly rebuild and recover, you might have to shut down your operations completely.
Practical safeguards against property damage/losses include:
- Identifying threats unique to your business location and developing an emergency plan to minimize disruption
- Carrying General Liability Insurance which protects companies against claims and costs involving bodily injuries and property damage, other supplemental coverage can add additional protection:
- Excess Liability and Umbrellas which cover claims that exceed existing policy limits
- Business interruption coverage that covers loss of revenue/profit due to temporary downtime as during the rebuilding physical premises
Human Resources Related Risks
A business’s human resources is a company’s greatest asset, however, it can also be a liability for businesses that are not well prepared for unforeseen circumstances such as accidents, injuries, and lawsuits. In 2019 about 5,333 fatal work injuries were recorded in the United States, as per the U.S. Bureau of Labor Statistics.
When it comes to accidents and injuries, safety plans, protocols, and ongoing training can help to protect employees as well as a company’s bottom line. Workers’ Compensation Insurance protects a business from the high costs of injuries and accidents such as:
- Slips, trips, falls
- Chemical hazards
- Back injuries
- Needlestick injuries
It’s difficult for company executives to anticipate lawsuits, so the best way to protect a business from potentially financially crippling litigation and settlement costs is to have the proper insurance in place. Commercial insurance products that can protect a company against these human capital risks include:
Employers Liability Insurance protection against financial losses if an employee or third party files a lawsuit against the business for a work-related injury, illness, or death
Employment Practices Liability Insurance (EPLI) protects businesses against claims by workers that their legal rights as employees of the company have been violated.
Management Liability Insurance protects Directors and Officers against lawsuits
Human Errors and Mistakes
What are the odds that one day a client could sue you for substandard work or bad advice? If you’re a service provider like a tax advisor, real estate consultant, or web designer, you should beware of such lawsuits as they can cause your firm substantial financial loss. Errors and Omissions Insurance is professional liability insurance to protect service-oriented businesses against unintended errors.
This policy can pay for a company’s legal defense and any compensatory damages if a client sues for a professional mistake. One point of interest that is commonly unknown is that company can be sued for “unsatisfactory work or product” even when they’ve done nothing wrong.
Global Trade/Logistics Risks
If a company is involved in international manufacturing or exporting to overseas markets, certain risks could hinder its operations. For example, supply chain bottlenecks that are out of a company’s control could disrupt business or even attract expensive lawsuits brought on by affected business partners. Lost goods or those damaged in transit and delayed deliveries could result in friction between a company and its vendors in a foreign country.
Implementing certain safeguards to minimize financial loss from logistical inconveniences abroad include:
- Obtaining a Contingent Business Interruption Insurance to mitigate any financial impact from overseas supply chain issues such as goods destroyed in a factory warehouse fire
- Minimizing international exposure with Foreign Casualty Insurance which protects American companies with operations outside of the U.S.
Commercial construction projects come with inherent risks, from project delays and onsite injuries to contractor overpayment. Without a proper plan in place, a business owner may end up assuming more than their fair share of insurance risk or exceeding reimbursements for materials and other costs. Ways to protect against financial losses in this area include:
- Promoting a safe environment and conducting ongoing safety training to reduce accidents and injuries
- Reading and understanding the terms of a contract, paying close attention to cost-reimbursements
- Apportion liability risks appropriately to minimize insurance costs
- Making sure there is enough insurance to protect a business, for example in addition to General Liability Insurance, Commercial Auto, Surety Bonds, Hired and Non-hired Auto Liability are additional coverages to consider
These are the biggest threats to financial success that many companies face day-to-day. If you have any questions about ways to protect against losses and risks, contact our risk management team at PMC Insurance Group today. At PMC we can place casualty lines of insurance along with Workers’ Compensation. Contact us to learn more.