BUSINESSES are placing themselves at risk by reducing their commercial insurance cover, new research has revealed.
The recession is believed to be the biggest factor, according to the British Insurance Brokers’ Association, which surveyed members recently and found more than 45% of brokers were reporting clients taking on more risk themselves.
Insurance Institute of Guernsey president Andrew Mills (pictured) said it was a bad idea for businesses to take such action and he hoped Guernsey companies would not see it as a way to cut costs, especially during challenging times.
‘Insurance is placed by businesses to help them to finance risks they do not wish to bear or cannot bear themselves. If a business removes this protection or some of it, it puts itself at risk of having to bear financial losses it cannot fund.
‘The result could then be that the business cannot continue and there is always a possibility that company directors, principals or other officers could be personally liable to meet some or all of the loss the business cannot fund.’
The BIBA also found that 40% of brokers had seen clients reduce estimates for turnover and wages as a result of the recession.
Mr Mills said it was crucial businesses talked to a qualified insurance broker or other qualified, licensed insurance adviser before taking any action.
He said there were options to make insurance protection as cost-effective as possible. It was also important for directors to look at how risk was managed in their business, he added.
‘Insurers often give significant premium discounts if a business is shown to be well managed and has a good claims record – many insurers can send their own assessors to determine how well risk is managed and can often give a business guidance on how to improve the risks they bear, with potentially positive premium results.’
From his own experience, Mr Mills said businesses often overlooked or underestimated the risks they faced whatever the state of the economy. Sometimes that was just down to a lack of time or awareness.
‘There are many examples of firms which have gone out of business because they have insufficient or inadequate insurance protection.’
He added that economic downturns could also increase the risks.
‘Crime, including arson, tends to increase, as does malicious damage – and those who have suffered financial hardship often look for someone to blame and for compensation from them.’
Article posted on 15th May, 2009 - 2.30pm
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