A recent nationwide survey by Safeco Corp. found most small-business owners are ill-prepared to recover their loss of business income or incurred extra expenses if disaster strikes, and aren't well informed about business income insurance. As you know, these costs collectively represent the most expensive losses businesses face following a disaster. According to the survey of 500 small-business (less than 100 employees) owners:

More than half (55 percent) said they do not have business income insurance.
Even more (63 percent) say they are unfamiliar with business income insurance.
Many may underestimate their risk. Nearly half (45 percent) estimated it would take them less than 3 months to recover to their current level of operations if their business were totally destroyed—about half the time that it seems to actually take most businesses.
Six out of 10 say they don't have the information they need to determine their business income insurance requirements.

Risk managers are certainly aware of the importance of handling time element loss exposures, but this has long been a difficult issue for insurance buyers with smaller organizations. They look at the cost, which is quite significant in comparison to the premium for the direct loss, and often decide to forgo the coverage or purchase a reduced limit. I remember reading about a study many years ago which found that most businesses that failed to purchase business interruption insurance never reopened their doors after a severe loss.

Do you see this as a problem? How do you educate management about the exposure so they can make a wise purchase decision? Can you share a horror story about a business that failed because it didn't have the coverage? Conversely, can you share a story about how business income coverage saved the day for an organization? [See reader comments].

Best wishes for a happy and healthy holiday season.

Jack

Jack P. Gibson
President
IRMI

Risk Tip

Use Employee Evaluations To Review Risk—Employee performance evaluations are a great opportunity to identify risk. Ask, "Is there anything keeping you from doing your job the way it should be done?" The answer might uncover a risk exposure.

A stockroom employee might say it takes too long to stock shelves because he has to make many trips up the stepladder to place containers on high shelves. Here you have an issue of productivity, a fall hazard, and an inventory damage hazard. If the employee must reach around or under things to pick stock, it is an issue of productivity, a possible back or shoulder injury, and a tripping hazard. To solve the problem, you might decide to store inventory differently or obtain materials-handling equipment.

An accounting department employee might say, "I don't know what we would do if Sid got sick. He's the only one who knows how to do his job." Rotate and segregate accounting duties to minimize the risk of embezzlement.

A sales rep might fear losing a customer because she can't get a product to them. Is there a single vendor you are depending on for a component in that customer's product? If so, consider arranging a backup vendor. The sales rep (and service staff, too) also might report customer complaints. Customers who complain identify a risk for you—the risk that you might lose their business if you don't address their problem. The sales rep also might worry that a competitor could learn too much about your products or processes. Is the information in your marketing materials or on your website good "competitive intelligence"? Tone it down.

Listen to your delivery personnel. You might learn that your salespeople are making unrealistic promises about delivery times, or that your vehicles won't pass the next inspection.

By listening carefully, you can help your employees, and reduce risk throughout the organization.

By: William R. Henry Jr., ABC
Vice President
Corporate Insurance Management, Inc.
Alexandria VA
E-mail:
www.cimaworld.com

Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send us a practical tip (less than 300 words) for identifying and managing risks, buying insurance, managing claims, or filling gaps in insurance coverages. We'll give you credit for your contribution.

New Expert Commentary

There are now 482 articles on IRMI.com, and many more are in production. Below you'll find summaries of some recent additions with links to the articles.

The Alchemy of Enterprise Risk Management: Examples From the Investment World—In his last ERM column for IRMI, Jerry Miccolis explains how the science and practice of ERM is rooted in the Modern Portfolio Theory and the "portfolio effect." Interesting examples are provided.
Creating a Privacy Policy Compliant with the New Online Privacy Protection Act—The Privacy Council discusses a new California law sure to result in lawsuits against commercial website operators who don’t post an adequate privacy policy and what should be done to comply.
Excess Follow Form Versus Umbrella—Peter Polstein takes a look at excess insurance in this month's insurance industry market practices column. Coverage terms and conditions, and negotiations, are addressed.
The New Business Risk Rationale (Part 1)—In this 2-part column, Pat Wielinski explores the myth which holds that where the property damaged is the subject of the insured's contract, there can be no property damage or occurrence.
Florida Revisits Its Condominium Insurance Statute Once Again—Doug Berry explains how a new statute affects hazard insurance policies issued to condominium associations with an effective date of January 1, 2004, and beyond.

IRMI Construction Risk Conference

Construction Risk Conference Handouts Available Online—The speakers' handouts from the 23rd IRMI Construction Risk Conference are now available on IRMI.com. Over 30 handouts covering such topics as workers compensation trends and developments, mold—the new asbestos and risk management solutions, hot topics involving liability issues, responding to insurer insolvency, managing construction workforce issues, and more, may be downloaded at no cost.

IRMI Products & Services

Classification Cross-Reference Updated—IRMI's popular Classification Cross-Reference has just been updated and is now available in print and electronic form. The new twelfth edition has been updated to reflect classification code changes in the last few years, expanded to include more entries, and the cross references have been refined. The handy book cross indexes NCCI, ISO, NAICS, SIC, and seven independent workers compensation state classification codes. It is an invaluable tool for underwriters, premium auditors, CSRs, and rating technicians.

Training & CE

Time Is Running Out To Get 2003 CE—If you're still scrambling to fulfill your continuing education (CE) requirement for 2003, IRMI has the answer with online courses that are easy to take and informative as well. One new course is IRMI Commercial Auto Insurance, which provides an introduction to commercial auto insurance. In addition to explaining the coverage provided under the policy, it examines some of the motor vehicle statutes, the public policy issues behind them, and their effect on various types of commercial auto coverages. For more information or to order one of these or other CE self-study courses, see the Training and Education section of IRMI.com.

Featured Expert Commentator

Gary Bausom has written for IRMI.com since its inception in 2000 on the topic of Insurance Rx for the insurance industry. He is president of Bausom & Associates in Alamo, California. Prior to this, he was a senior executive of InterVenture Partners, was the founder and former managing principal of Risk Solutions Group, served as a a senior consultant with Towers Perrin, and was a vice president at the Bank of America. In his career, Mr. Bausom developed approaches to selecting, evaluating, and managing insurers, service providers, and business partners which he now shares with IRMI.com readers. For more information on Mr. Bausom, see his full biography and a list of his articles.

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IRMI Update—Issue #79

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