In the quest to get products out the door and operate a profitable firm, few business executives devote even scant time and attention to the topic of risk and losses. “Insurance is something people know they need but very few spend adequate time thinking about how to use it strategically,” states Richard J. Ahmann, CEO of RJ Ahmann Company, an independent agency in Eden Prairie, Minn. “Too often, it's the last thing on their mind.”
It's no small matter. In a world filled with perils and catastrophes as well as negligence, theft, and accidents, the right insurance coverage is critical. “We all operate under the assumption that nothing bad will happen. But bad things do happen and insurance is often the difference between a business succeeding and failing,” observes Ted Devine, CEO for insurance firms Insureon, based in Chicago, and Tech Insurance, an Insureon company based in Allen, Texas, leading providers of business coverage for SMBs across a wide swath of industries.
To be sure, many businesses put their balance sheets and personal finances at risk with inadequate coverage. Moreover, the list of potential threats extends beyond property losses and vehicle collisions. Companies may require general liability insurance, professional liability insurance, workers' compensation insurance, fidelity bond coverage, board of directors' insurance, and other specialized coverage. There's no cookie-cutter way to approach the topic. Every channel pro has different requirements and risk tolerance levels.
Deciding which types of insurance to purchase and which to eschew is no simple task. Devine says that key issues include: revenues, scope of operations, number of employees, and areas of potential risk. Ideally, an agent compares this information with risk mitigation methods - for example, a seismic upgrade to a building or a documented dispute resolution process - and examines the trade-offs associated with different types of coverage and deductibles.
“The goal is to balance threats with risk management techniques and then determine what the appropriate level of coverage is,” Divine explains. Basic factors such as local construction costs, actual replacement costs, the inflation rate, and current valuations all enter into the picture. What's more, a business must weigh the potential for a lawsuit and the financial resources required to cover such a loss. “It's important to understand what you can afford to pay, what deductible makes sense, and how you would deal with a serious event,” he says.
Property protection and general liability insurance are merely a starting point, notes Jane Hinderscheid, client executive for RJ Ahmann Company. They are designed to cover damage to people or property and guard against lawsuits and legal claims that could arise as a result of anything from a traffic accident to a defective product. In most cases, these policies also cover negligence and damages resulting from dropped or damaged equipment or even spilled coffee. “It is designed for all the things that can and do go wrong in the normal course of a day,” she explains.
Professional liability insurance is also necessary for many channel pros. Just as a doctor or lawyer has malpractice insurance, a professional policy addresses quality of work and protects against errors and omissions. For example, if an employee installs a group of servers and wires the data center incorrectly, a fire could lead to a lawsuit. Likewise, a poorly written software application could cause a client to lose business from its customers and spawn a lawsuit. “Even if it's not required, professional liability is often important,” Ahmann says.
Workers' compensation is also essential for many firms. Most states require employers to carry this insurance, which provides benefits to employees who are injured at work. Ahmann says that in some states the insurance must also cover independent contractors who are injured on a job. Consequently, he cautions against hiring independent contractors and thinking it's a way to avoid the insurance. “The liability for the injured person will likely fall on the employer,” he points out.