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Preparing for the Worst


You know all about the risks of doing business. The importance of holding onto key customers and maintaining good relationships with your suppliers. You’ve dealt with rising costs, failed deals and ruthless competition.

But what about the risks outside of your control. The risks that cannot only hamper your business, but kill it outright. Many small companies haven’t given proper thought to the simplest and most worrying question: what could go wrong?

Knowing the answer can come with experience. Richard Rogi’s company, Nose Creek Electrical Services, has a complete package of safety and liability insurance, mandatory for doing business in the construction sector. Those policies weren’t always robust, and had to be slowly added to over time.

“Learning about safety for Nose Creek Electrical evolved over the years,” says Rogi. “At the outset it was mostly based on experience, and over time, organizations outside of Nose Creek asked for better safety protocols and reporting as requirements to do business.

“Safety has evolved and will continue to evolve. It’s a constantly-changing target.”

The cost of well-trained and insured employees is nothing compared to the potential liabilities, both physical and financial. Anne Kleffner, professor of risk management and insurance at the University of Calgary’s Haskayne School of Business, can’t imagine a business operating without some sort of liability policy.

“The important thing is to have policies and procedures in place for ensuring that employees are properly trained, and procedures are done in the right way.”

Overall, the absolute basics for protecting your business are simple: safety, liability and if you have a physical space, property policies. But the risks your business faces are overly complicated. The next step is digging deep and understanding your business.

“Companies can do some fairly simple business-impact analysis to think about what really affects their business,” explains Kleffner. “It might be a function of customers, of suppliers, of the Internet. What are the things that potentially have a big impact on your business and what can you do to address those things?”

Of course, each business faces different hurdles. The risks faced by a construction company and an online retailer aren’t one and the same. An entirely digital business doesn’t have to worry about property insurance, for example, but cybersecurity becomes a huge threat.

“Right now cyber risk is a concern for anybody,” says Kleffner. “For a small to medium-sized company, their financial ability to put money towards cyber protection is minimal compared to larger companies, so they leave themselves open.”

Businesses need to analyze risks from all angles, even what may seem miniscule. But there’s another side to risk management, one that involves uncertainty and emergency. If something was to happen to your business right now, are you prepared to handle it?

“In the event of an owner passing away, or a fire that happens that night, what do you do?” asks Sam J. Feldman, senior vice president of Bell Davidson Insurance Brokers. “What are the next steps to help mitigate and keep you in business?”

It’s an extremely complicated and elaborate question. What are your fail-safes? Is the company secure in the event of the unexpected?

When struck by an emergency, companies sometimes have to turn to their own capital while waiting for insurance claims. Feldman notes this type of “self-insurance” might be possible for a major company with large amounts of capital, but it can devastate a smaller company.

“Small companies usually don’t have resources to hold them through the tough times; they just don’t have the cash around.”

For your ship to weather a brutal storm, you need to brace against the oncoming damage. Just as important as knowing where your ship is weakest, however, is knowing who keeps it afloat. It’s important to recognize if your sizable business is overly reliant on just a few people.

“Owners tend to feel like directors and officers insurance is only for big companies and that’s just not the case,” explains Feldman. “There’s so many companies out there that are so heavily weighted on key people.”

Worse still, you might have to contend with holes in your insurance policy. The 2013 floods devastated businesses across Alberta, and Kleffner remembers some businesses not directly affected still lost access to inventory or missed key deadlines.

“The flood showed a lot of businesses that if they didn’t have business interruption coverage, they were very affected. The risks that it covers depends on your property insurance. If a company with a property insurance policy chooses not to buy flood insurance, then on their business interruption policy they don’t have flood insurance.”

Business interruption insurance is not a common purchase. It is usually first on the docket when trimming insurance budgets. Unfortunately, the policy is often ignored due to a simple lack of clarity.

“Business interruption insurance is probably one of the most major overlooked insurance policies because a lot of brokers don’t really understand it,” says Feldman. “That’s a significant continuity policy: to keep the rent going, to pay the lights, to pay the staff.”

Why don’t all brokers understand business interruption insurance? The reasons can vary from commonly-held misconceptions to frustrations with how it interacts with other policies. It can also be because your broker simply doesn’t understand how important the policy is for your business.

“They’re selling insurance to risks without knowing how the business operates,” says Feldman. “Not all insurance brokers know everything about everything. For example, I don’t do oil and gas insurance. I don’t understand it; I don’t know anything about it. If you don’t understand the business you don’t know what risks to look for.”

How do you contend against risks you can’t prepare for, complicated policies you can’t understand, and insurance brokers that don’t know your business, all at once?

For Rogi’s team at Nose Creek Electrical, the answer is active participation. The company insures its directors. It has policies for cybersecurity and business interruption. Over the years, the executives became more active in planning their insurance policy.

“Our bonding agents and broker have annual meetings with our management team,” says Rogi, “to discuss our corporate risks and identify trends in the market where Nose Creek could be better situated in minimizing risk.”

At the end of the day, the biggest factor is your involvement. The more present you are in the insurance process, the more it will fit and protect your business.

“It’s important not to be passive,” says Kleffner, “But to try to understand enough and ask questions about what insurance is needed and why. It’s not really reasonable that a lot of business owners are going to have a deep understanding of insurance, and brokers can really play an important role in terms of understanding those risks.”

The usual defence for a lacking insurance policy is a small budget. Feldman understands the impulse to cut costs, but points out the cheapest insurance isn’t necessarily the right purchase. The answer isn’t to splurge, it’s to simply be involved and active.

“When you’re talking to an insurance broker, have a thorough discussion with them on the risks of your business. The right purchase is a good insurance policy for a market-value price with an insurance broker that knows how to get you back to where you were.”