It is a common goal to find ways to limit your expenses when starting your own small business, but there are certain areas where this streamlining will actually cost you more in the long term, such as effective insurance.
With a yearly increase in startups, especially thanks to the popularity of varied online businesses, there is a growing trend in self-insurance confidence as these owners feel they can successfully avoid any financially negative events. Read on to explore why being self-insured is actually harmful to your business's long-term success and what the right alternative is.
Self-insurance is defined as being a self-sufficient solution to financial protection. When choosing this option, you use your own initiative to set aside funds that can be used to pay if successful claims are made against your business. Self-insurance is an independent concept that works without the need for other companies or their insurance solutions, and whilst this may sound like an appealing choice for SMBs, it does expose your business to significant risks.
Depending on the event, when opting for self-insurance, you are committing to paying for staff medical treatments, building water damage, customer vehicle damage or any number of other undesirable costs out of your own funds without the possibility of reimbursement by an external insurance company.
You may be self-insured already in one way or another, whether you realise it or not. Choosing an excess on any insurance policy is essentially self-insuring for that amount. Remember, the excess is the financial amount you are willing to risk and what you are paying for out of pocket. This can be a low sum like £1000 or as high as £10,000; it's entirely up to your financial situation and policy that you are buying
The beneficial concept of any insurance – including self-insurance – is to help protect you financially, so your finances will only be minimally affected by large, unexpected payouts. When a small business opts for a more conventional package, for example, sports and fitness insurance for their gym, there will be related premiums that will need to be paid repeatedly to maintain this financial coverage.
Some owners will feel more secure in their daily work and choose to forgo these extra costs, repurposing these finances into other areas of their business. Essentially, the certain losses related to paying premiums compared to the risk of rare, unexpected payouts will seem the worse choice, depending on your business. Unfortunately, businesses often regret this choice once a successful claim is made, and the funds are lost.
The number one concern about self-insurance is the random potential of unforeseen financial losses, but there is a second and more subtle problem: commitment. Putting aside funds for your own insurance plan manually is a significant commitment that you must maintain despite any fluctuations in your business's profits. It is, unfortunately, easy to start to forget payments and reallocate funds to other areas over time; then, when disaster hits, you're suddenly less financially equipped than you intended.
Additionally, many owners who choose to self-insure will often find themselves following the same path as people who pay for standard insurance packages but with an unwanted additional administration complexity.
Misunderstanding your business's exposure to risk is the largest issue with self-insurance. Either the amount you need to have saved or the frequency of the claims is often underestimated and will lead to these negative events having a larger impact on your finances than you intend.
Being informed is the best way to overcome the risks of being self-insured, and the best way to be informed is by consulting an experienced insurance broker. Our insurance brokers in Bolton have provided hundreds of businesses with the best information they need to understand the risks their businesses are exposed to.
At IC Insurance, we make this a streamlined, efficient process. It is our job to find and discuss the type of cover required for your business out of the many options available. Then, we can take on the responsibility of finding cover that is both affordable and right for your needs. With our award-winning brokerage service, finding the insurance your business needs will no longer be a hassle.
Whether it's the complex supply chain issues protected with our insurance for manufacturers packages or finding the best coverages for your e-commerce fleet of vehicles with our motor trade insurance, our expert team will build tailored insurance packages to accommodate all your business needs and assist with the consistent administrative duties so you can focus on on your businesses future.
