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Big Business Insurance Risks (and How to Mitigate Them)

Every business comes with a certain amount of risk. Although pitfalls and challenges can't be avoided, they can be mitigated with the proper precautions, planning and insurance coverage.

Insurance and legal experts shared their thoughts on today's biggest insurance risks for business owners, and what you can do to protect yourself against them.

Data breaches

Businesses in all industries have seen a huge increase in cybersecurity problems in recent years. Chris Roach, managing director and national IT practice leader of CBIZ Risk & Advisory Services, said data hacks have hit fast-food retailers and e-commerce businesses particularly hard. However, he added that every business that accepts credit cards should be re-evaluating and standardizing its security practices to protect against fraudulent activity.

Property damage

Hurricanes, snowstorms, floods, fires and other events that damage your business's physical property can throw a serious wrench in your business's ability to operate normally. While your storefront or office may not have been completely destroyed, chances are, you won't be able to run your business out of there while repairs are happening.

"Only 50 percent of small business owners have a written business-continuity plan, according to the Travelers Business Risk Index," said Scott Humphrey, second vice president of risk control at Travelers. "Between severe weather events and the increasing reliance on a complex network of technology and supply chains, the risks of business interruption are plenty."

Human capital costs

If you have employees, you have a significant amount of business risk. Whether an employee is performing a labor-intensive task, driving a company vehicle or interacting with the public, there is a risk to the company, said Bryan Robertson, equity partner at Sihle Insurance.

"The need for industry-specific training and internal loss controls are apparent now more than ever," he said. "The employee needs to understand how their decisions and actions can tremendously affect the company's well-being, both positively and negatively."

On the flip side, changing market dynamics can mean major cutbacks across the board in certain industries, which can also be an unexpected financial risk, said Tony Consoli, president of the Mid-Atlantic Region at CBIZ Insurance Services.

"Although making changes to the workforce is inevitable ... during tough times, very few business owners know the risks involved with layoffs," Consoli said. "Unemployment insurance costs can be an expensive burden on employers."

Professional service mistakes

Service providers like accountants, consultants and web developers all face the constant risk of customers seeking legal recourse if their "product" doesn't meet expectations. Kevin Kerridge, executive vice president of the direct and partnership division at Hiscox, a small business insurer, said that a common challenge for many small business owners is overcoming the mind-set that their work is so good that no client would need to sue them.

"A business doesn't have to make a mistake to face an allegation," Kerridge said. "One lawsuit, even if unwarranted, can cripple a small business in terms of time and money."

International manufacturing and export/transit issues

Many companies utilize overseas factories to manufacture their product, or export products internationally, said Lou Camhe, vice president of CBIZ Insurance Services. A lot can go wrong in the journey from factory to warehouse to showroom to retail store, especially if it happens outside your home country, Camhe said.

Building projects

According to the U.S. Census Bureau, U.S. construction costs reached $1 trillion in 2015 — the highest they've been in nearly a decade. This industry boom indicates that building projects are increasing, and many of those projects are commissioned by businesses and educational organizations that want to expand, Consoli said. However, he noted that construction comes with a fair amount of risk that business owners should consider before moving forward with a contract.

What's your biggest risk?

Every industry and every individual business within an industry face different levels of risk, both in terms of the probability of something happening and the severity of the consequences, Kerridge said. However, ignoring those risks is simply not an option, he said.

"There is no substitute for running a business professionally and not cutting corners, but however careful you are, bad things happen," Kerridge said. "It's worth buying as much insurance as your budget allows, as a backstop."

"Partner with an appropriate carrier that is invested in your company's long-term success and provides the necessary loss mitigation tools," Robertson added. "Each carrier has its own industry specialization, and it is important [to work] with a broker who will provide a complete risk management program, rather than merely a cost-based approach."To assess your level of risk, Freed advised selecting and building relationships with a "dream team" of advisers: an attorney, accountant, insurance broker and banker.Each has something valuable to contribute to minimizing risks efficiently and effectively, he said. 

"An advisory dream team, empowered to be proactive on your behalf, can help anticipate and avoid pitfalls that befall many business owners," Freed told Business News Daily. "The old adage is entirely true when it comes to risk mitigation: 'An ounce of prevention is worth a pound of cure.'"