At the AdobeSummit in 2014 (the Adobe that brings us PDFs and Photoshop) Robert Redford talked about risk, summing up for businesspeople everywhere one of the main tenets of commerce: “Not taking a risk is a risk.” Redford was encouraging business leaders to take risks with art and creativity.
Business owners face risk every day. And while they may sometimes take the creative leaps Redford is hoping for, more often business owners feel like Redford in that famous scene from Butch Cassidy and the Sundance Kid in which he and Paul Newman are chased to the edge of a cliff and then jump into the river below. Watch the classic clip.
How do you handle risk?
Risk can propel a business forward or put it in peril, but it will always be there. How you deal with risk is what determines whether you’re moving forward or back.
You buy insurance to cover risks you know you might encounter. You cover property, liability, and the loss of income that might result from something like a fire or tornado. You purchase insurance against the idea that your business – because of something like an error, neglect, or misconduct – may injure a third party. These are pure risks – sometimes also called static risks – and they are all insurable.
There are also remote risks. There is the very remote risk that you could be injured during the type of train robbery that the Hole in the Wall Gang performed in Butch Cassidy and the Sundance Kid.
Frequency risks are the type of risks that commonly happen. Trucks in your fleet may get in accidents, cargo containers may fall off the ship during a storm. Severity risks, on the other hand, are the larger events that occur and are very traumatic to a company – involving loss of life, severe property damage, and possibly far reaching impact to the environment.
Don’t jump off the cliff without a safety net
During the filming of Butch Cassidy and the Sundance Kid, Redford and Newman actually jumped off the cliff toward the river – onto an air mattress a few feet below. Insurance is your air mattress against risk. But even if you purchase all the insurance available on the commercial market, you may find that you’re not covered for the potential issues your business faces – or you are covered, but the deductibles set by the insurance company are prohibitive to the way you do business.
A captive insurance company is a bit like lining a safety net a few feet under and a few feed wider than the air mattress hanging off the cliff – just in case you fall a bit harder than you thought. Captives cover the risk that insurance policies might miss. You create the insurance company, fund it, and operate it as an insurance company, and then your business purchases insurance from the captive. The captive insures you for pure and static risks that occur with some frequency and severity potential, and in the event that your company needs to draw from insurance, the captive is there to keep you from crashing into the river.
The risks you take with your business should be the daring ideas that propel you forward. For all the other risks that lay out there waiting for you, get the right kind of coverage. Don’t leave it to the last minute like Butch and Sundance did. Contact us if we can help.