Talk to a small business owner just starting out or a senior executive at a flourishing company and both will tell you that risk is the essential ingredient to success. It is the element that keeps businesses in front of their competition and the main spark for innovations that change the marketplace.
Seasoned mavericks know that the key to successful risk taking is evaluating risks and making sound business decisions on how to deal with them. That’s where risk management comes in.
Insurance helps with managing risks
Risk management is the art of looking at potential threats to your business and deciding how to deal with them. Options may range from reducing risk through prevention, limiting potential exposure to threats, or implementing controls against perceived threats. But even the most carefully planned businesses can be blindsided at times.
Traditional insurance policies help companies by providing indemnification – or compensation for loss and damages when something goes wrong. Insurance places the insured in a large pool that can reduce the impact of the loss – the Law of Large Numbers at work.
Some businesses, however, find that they need to insure risks that may not be covered in traditional insurance plans. These businesses can form a captive insurance company to formalize self-insured risks and share the potential burden with businesses who face potential issues similar to their own.
Benefits of Captives
By identifying and insuring potential hazards that could have damaging impact – think of a huge explosion that impacts a large community, or the kidnapping of a key executive – the company is protecting itself. The insured events are remote possibilities, and if the loss never occurs, the premiums paid to cover them generate higher profits over time.
Captives offer benefits like cost reduction, more control over settlements, leverage against third-party insurers, and the ability to establish better-than average claim experience. Companies also find captives are a good way to manage cash flow and protect assets.
There is no doubt that a sense of bravado and the willingness to explore new frontiers drives business forward. Being prepared for almost everything on the road ahead will help you maintain your lead.