Risk Management: know what to insure


It’s a bit of a Murphy’s Law principle that businesses often don’t really come to grips with their risk management plan (or the lack of one) till some random accident takes out a key manager or lead hand and it hits everyone what it will mean for the business.No one can plan for everything but every business should have a sound grasp of the kinds of risks that might hit them hard. And every business should put strategies in place to minimise risk and deal with it, if the unthinkable happens.

When you are thinking about insurable risk for your business, emotion can sometimes derail the process unless you put a framework in place to assist in the decision making process. You also need to assess whether you can manage risk through your own resources first.

There is no one rule to apply to insurance risk as everyone’s situation is different. However, start by brainstorming up every conceivable risk. Then divide your list into two columns:

  • What are the potentially catastrophic events that may affect your business? What are the events that could result in financial loss, cause you to substantially change your lifestyle or force you to close down your business? These are ideal risks you should think about insuring for.
  • What are the risks that might potentially cause you to suffer losses but which you could manage out of your own resources such as cash assets? Generally, you may not need to insure against these risks.

Whenever they start to work through their insurance plan, most people tend to think about things rather than people – the buildings, the vehicles, plant and equipment. You also need to factor in the impact if key people were suddenly not there to make everything run smoothly.


FYI…Human capital: in a business, human capital is the sum of all the intangibles that people bring to the business without which the business would be so much the poorer. It’s the knowledge, skills, experience, the attitudes, creativity, training and judgement that help a business reach its goals, grow and succeed. Human capital is the total capacity of the people in the business. It is another form of wealth which can be directed to accomplish the goals of the business.


Do a double take and consider whether you’ve really taken human capital risk into account. What would be the effect if you couldn’t work for six months, for example? Who are the other key people in your business? What would be the impact if they couldn’t work for six months or if they couldn’t return to work at all?

Often people make the mistake of over or under insuring in the wrong area and find there are gaps in their risk management plan. For professional advice in structuring your risk management plan connect with your local insurance consultant. If you’re not quite sure where to start, talk to us first to help break it down.

Human capital risk – what is it and what do we do about it?

When you are in the process of assessing your business risk and putting together your risk management plan, make human capital risk one of your focus areas.

Human capital risk is a term which covers whatever arises out of not managing anorganisation’s human capital well. This includes:

  • catastrophic workplace events such as disabling illness, injury or death
  • losing staff to rapid turnover
  • a team member committing fraud or misappropriating assets
  • negligent hiring or retention, such as where an employer fails to complete necessary background checks on a new hire and, as a result, employs someone who is dangerous or untrustworthy
  • complacency, where the organisational culture is one of ‘I don’t know’ and ‘I don’t care’ and the business drifts or runs aground because of this

When you review the risk management strategy for your business, assessing risk is not so much
about analysing how likely or unlikely it may be for an event to occur. Over the last few years we’ve certainly witnessed that extreme and unlikely events occur far too often for comfort. It helps to analyse what the cost to the business would be if any of these risks occurred. Could the business take the hit or do you need to have strategies in place either to avoid them altogether or cushion the blow? And what sort of strategies might be appropriate?

Where catastrophic events pose a danger to the business through the loss of key people, an insurance package might cover funds to help cover shortfalls through the transition and replacement costs, as well as funding a shareholder’s share of business debt, and purchase of the deceased or disabled partner’s share of the business. Backup strategies might also include developing a leadership programme, more effective delegation of responsibilities, mentoring and training.

If staff turnover’s an issue, is there something else going on? Are pay points far lower than those of competitors? Is morale an issue? Are the business’ recruitment strategies just not finding the right fit for the firm? You might look at what your competitors are doing but you could retool recruitment and training processes to increase employee retention. If staff are leaving because for lack of a clear career path, could the organisational structure offer solutions? You might also look at organisational culture and introduce measures to improve morale, engagement and a positive outlook toward the business and customers.

The potential damage a fraudster could do to a business is truly horrifying. It’s hard to come back from the direct costs to management, as well as the damage to the brand, team morale, and vital relationships with partners, suppliers and regulatory bodies. However, it is possible to create a climate which minimises the possibility. Strategies might include screening employees at pre-employment as well as screening suppliers and third parties, thorough internal controls and audit processes, as well as a clear code of conduct and awareness training for the whole team.

Whatever your assessment of business risk, a risk management strategy that meshes with every aspect of the business is crucial. Regular review and energetic follow through will help to minimise risk and create a stronger organisational culture alert to possibility and adaptive to change.



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