Insurance: expense or income?

An insurance portfolio for an SME soon adds up to a few thousand euros. Smart directors and risk managers use insurance policies to bring or keep operational costs under control. But how can you maximise the benefits of your policy while keeping an eye on the costs of your contract?

An insurance policy is not a maintenance contract or means to offset recurring or expected losses.

Map your risks

Once you become aware of the possible negative consequences of a certain risk, you naturally consider the potential impact this would have on your company – what are the chances of such a situation occurring and/or endangering the continued existence of your company?

An efficient risk management strategy enables you to manage, limit, transfer and cover the costs of risks within your company. The more effectively you map the risks, the more able you will be to anticipate them. Although entering into an insurance contract is indeed one possible way of achieving your goal, sometimes there are better solutions available (e.g. fire prevention, cyber security, alarm installations, etc.).

Limit your opportunity costs

Unlike, for example, car insurance and fire policies, there are no standard products as far as industrial insurance policies are concerned. Complex insurance policies are tailor-made and require knowledge and experience to be able to estimate the impact of various clauses and provisions.

If you always look for the cheapest solution, you lose sight of many business risks. The more time you spend checking the costs, the greater the opportunity costs become. In other words: ‘If you pay peanuts, you get monkeys’.

And let’s be honest: in the event of a major loss of profit, your CEO will probably not be asking you how much you paid for the insurance policy, but rather what damages it covers.

Your public relations approach to insurers

When answering questions regarding the insurance proposal, it is best to be as honest and comprehensive as possible. Deliberately withholding information or avoiding questions may lead to a refusal to cover a claim or to the insurance contract becoming invalidated altogether.

Use inspections by insurers as an opportunity to present your company in a positive light. Ask questions and show your commitment. The better the impression you give, the lower the insurance premium will be.

Avoid premium adjustments or exclusions

An insurance policy is not a maintenance contract or means to offset recurring or expected losses. When taking out an insurance policy to finance foreseeable or frequent losses, this will lead to an adjustment or cancellation of the contract sooner or later.

As a result of the financial crisis and increasing pressure from European legislators, insurers are now more cautious.

Tailor your insurance policies to accommodate for the evolving market

In a rapidly globalising market, insurers may be confronted by insufficient insurance capacity. Furthermore, new risks of an environmental, fraud- or cyber-based nature may lead to your company not being (fully) insured.

Dynamic insurance management – under which your insurance portfolio is evaluated every three years – guarantees optimum insurance cover in line with changing market conditions.

Benefit from a long-term relationship with your broker

Even more important than the price is the service provided by your broker and insurers and the extent to which they adapt to meet your needs. A good (long-term) relationship with your broker and insurer(s) will often give your company a competitive advantage.

It is this extra guarantee or increased limit which enables your company to stand out from the competition. If your company is able to realise a substantially larger turnover because of this, you can be sure that your CEO will see the benefit of the limited additional cost of an insurance premium.

Jorg Hulpio

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