Good business practices help keep the number of business insurance claims to a minimum. Business insurance is there to protect your business when the unexpected happens, it’s not an all-encompassing safety net for bad business practices.
What are “Bad Business Practices”?
Many business owners go into business with the best intentions, but sometimes not the right knowledge for running a business. Bad business practices can happen to good people.
Business practices are, basically, how a business is run. The policies that dictate how things get done and how issues get handled are at the core of business practices. And, some businesses do a great job in some aspects of business, and a not-so-great job in other aspects of business.
A “bad business practice” happens when there’s limited understanding of the process or a lack of attention to the details that make up the steps of the process. For example, one of our clients needed a cargo policy as they ship items frequently. Within five months they submitted four claims.
Sure, things happen, but they shouldn’t happen that often. Five months is a short period of time to have four claims. A good business practice would have been to review their process after the first claim to see what they could do to limit their exposure to problems, and again after the second claim, to fine-tune their process even further.
Instead, it was obvious after the fourth claim that they needed to work on their business practices and stop relying on their business insurance to cover their losses. When he told me he had another claim to submit, I saw only two possible results - a huge premium increase or the insurance company canceling the policy - and neither of them were good for my client. So we sat down to review his policy and I was able to explain the situation and the need for better business practices. He took my words to heart, didn't submit the additional claim (which fortunately was not that large), and maintained his premiums and business insurance policy. He also improved his policies and developed much better business practices!
Business Insurance Basics
Business insurance is meant to protect a business from unexpected situations. It is not a discount program that helps pay for repeated mistakes, or a magic pill meant to take the place of a maintenance contract. If a business overuses a policy, they’re going to lose it.
When a business starts a new business insurance policy or reviews the current one, they should be thinking about coverage for extreme situations. A few examples include lawsuits, physical damage to their offices, or loss of inventory from things such as a hurricane or fire.
Business insurance policies are meant to be there when a business really needs it, so they can stay in business. It's not meant to be used every single time something happens, especially the smaller things that may have been avoided with better business practices.
Business insurance is designed to work in tandem with good business practices to keep a business healthy. When a business offers proof of good business practices the insurance carriers are more confident in underwriting the policy. (Check out our blog post, “Business Insurance: Are you asking the right questions?” to learn more about the types of things carriers are looking for.)
Good Business Practices
Business policies and processes need to include controls, so someone is watching how things are going. When employees, including business owners, are left on their own to complete a task and manage a project, without company-level policies and processes to follow, there is a lack of consistency which can easily cause problems. Additionally, with policies and processes in place, it will be easy to identify a non-conformist employee, which is one of the greatest risks to any business!
Good business practices mean that the business is doing something to protect themselves. It’s taking extra care of how things are working and who’s doing what. Simply, doing the due diligence that the business should be doing protect their employees, services, offices, buildings, equipment, products, and everything else they need to stay in business.
Business insurance carriers consider this “good risk management”, which is always a good business practice. The business must take responsibility for being in business and doing everything possible to conduct business safely. Business policies and processes that include controls, due diligence, and regular review help businesses uncover problems before they become incidents, or lawsuits that require insurance policy claims.
Business Insurance and Good Business Practice is a Great Partnership
Business insurance agents want to help businesses stay in business. We work hard to deliver the right policies based on the unique requirements of the business. When a business steps to the plate and takes responsibility for the way the business is run, with solid policies and processes that include controls (and documentation), it helps to create a stronger partnership.
The insurance policy is there to protect the business from a large and unforeseen claim, protecting the business from financial loss. The good business practices help to prevent claims before they happen, help to qualify for better premiums, and more coverage options!
Together, business insurance and good business practices are going to keep you in business!
