6 biggest financial risks to your business

Many executives in private companies do not fully understand how their business insurance works. There can be a big gap between what you think you have and what the policy will really pay.

Insurance policies exclude or limit payment on some of the items that can really hurt a business. Remember that it is up to you to control your insurance.

Chubb Insurance Company presented a report in November 2010 and the following is the summary:

1) 25% of respondents rated Employment Practices Liability (EPL) as the biggest loss event. Within the last five years, 33% of respondents experienced a loss related to employment practices. The average loss, including defence costs, was $59,402 and in one case the total cost was $2 million. Further, 42% of respondents mistakenly believed they had EPL coverage under their general liability policy.

2) 17% of respondents rated Errors and Omissions (E&O) as the most financially damaging. In the last five years, 14% have experienced an E&O related loss, and the average cost was $63,000, with the largest loss at $900,000. About 30% of survey respondents purchase E&O liability insurance.

3) 16% of respondents rated employee theft a great risk. In the last five years, 30% of private companies said they experienced a loss related to employee theft. The largest loss from workplace crime was $2.5 million. Further, 26% of companies with 25-49 employees have fidelity/crime insurance coverage, and 42% of companies with over 250 employees have such coverage.

4) 9% of respondents rated Directors and Officers (D&O) a high loss event, and 20% feel they will experience a D&O related loss within the next year. The average cost was $229,756. About 40% of private companies and 53% of larger companies have D&O coverage.

5) Another 9% of respondents rated an electronic security breach a financially damaging risk. In one case, the total loss reported was $350,000, and 46% said they don’t purchase cyber liability coverage because they feel it is “low risk/no exposure.”

6) 7% of respondents rated workplace violence a financially damaging risk. Further, 18% have experienced a loss related to workplace violence, but only 6% purchase workplace violence expense insurance. The average reported loss was between $20,000 and $250,000.

Have you considered any of these issues? Talk to your agent or broker about your need for managing this risk.