Businesses face a plethora of risks; some are speculative where there is a chance of loss or gain such as currency movement and some are pure risks where there is no chance of gain e.g. your building either remains undamaged or it is burned down by fire. Only pure losses are insurable.Â
Many SMEs are exposed to insurable risk but do not identify that they are in fact self–insuring most of the exposures faced. This is because commercial insurers and agents tend to concentrate on what is generally available in the commercial marketplace and place little emphasis on other areas. That restricts the risks to be covered and the structure of the insurance being offered.Â
By taking an ERM approach an SME can identify risks that may not be insured commercially and may consider choosing an alternative funding approach such as a captive insurance company. A captive insurance mechanism may also help spread risk and reduce volatility.
Examples of risks typically self–insured may include deductibles and exclusions on existing commercial policies, product warranty/liability, food-borne illness, reputational risk, supply chain disruption, construction defect, mold, subsidence, employment practices, sexual harassment, the credit risk associated with accounts receivable, government and administrative actions, disability, earthquake, wind, and weather, etc.
By conducting an in–depth review of the business, a risk advisor can assist with the identification and analysis of risks faced by a particular organization and can provide help in controlling, minimizing, and funding for the eventualities of risks faced. For those pure, fortuitous risks identified insurance may be a solution.
