In today’s complex business world, risk management is essential to ensure the continuity and prosperity of companies. Whatever their industry or size, companies are exposed to a variety of risks, such as property damage, legal disputes, cyber-attacks, natural disasters or workplace accidents. In such cases, insurance plays an important role, providing essential financial protection against the unexpected, and sometimes support too. The aim of this article is to make you aware of the importance of insurance for your organization, and for this reason we’ll limit ourselves to a few points. When it comes to insurance, it is always strongly recommended to consult an insurance specialist.
When it comes to resilience, insurance is a complementary tool for transferring risk (or part of it) to a third party, such as an insurer, but it’s no substitute for a resilience plan, which enables you to mitigate and manage risk, prepare your business in the event of a major incident, disaster or crisis, respond and coordinate the response following a major disruption, train staff and carry out tests and exercises.
Here are a few examples of resilience plans:
- Emergency Response Plan (ERP)
- Business Continuity Plan (BCP)
- Crisis management plan (CMP)
- IT disaster recovery plan (DRP)
- Cyber attack plan
- Crisis communications plan (CCP)
- Physical Security Plan (PSP)
- Fire safety plan (FSP)
- Etc.
Different types of insurance
The choice of insurance a company should take out depends on several factors, such as the nature of the business, its activities, assets and specific risks. These factors influence the type of coverage required, as well as the associated cost. Here are a few examples of common commercial insurances with adapted definitions:
- Commercial General Liability: protects against liability claims related to bodily injury and property damage.
- Professional Liability (E&O): necessary for companies providing professional services by covering possible errors and omissions, resulting in financial and reputational losses for clients.
- Directors’ and Officers’ Liability (D&O): protects officers and directors against claims relating to the management of the business.
- Property protection: protects company assets, such as buildings, equipment and merchandise, against damage caused by events such as fire, theft or natural disasters.
As a complement, companies should assess their risks and the need to own and acquire additional protection. These do not replace resilience plans, but rather should be seen as a complementary means of transferring or sharing risk. Here are a few examples of specialized insurance policies with adapted definitions:
- Equipment breakdown: protects against sudden and accidental failure of specialized industrial equipment (pressure, electromechanical, PLC, etc.). Some may also offer complementary inspection services.
- Cargo: covers damage to materials and products during transport in a cargo ship.
- Cyberrisk: protects against losses associated with computer security breaches, such as data theft and cyberattacks.
- Kidnap and extortion: protects against financial losses following kidnapping or ransom demands.
- Third-party equipment: covers loss and damage to third-party equipment under your responsibility.
- Loss of income and business interruption: covers loss of income when the business is unable to operate due to a major disruption.
- Pollution: covers damage caused by a sudden or accidental event causing pollution (emission, discharge, escape, dispersion of substance, etc.).
- Stock throughput (STP): covers direct damage to materials and products in storage and during transportation.
Insurance and resilience plans go hand in hand
While insurance usually offers financial protection against material loss, resilience plans go beyond this by focusing on the organization’s preparedness and ability to recover from various crisis and major incident scenarios.
Here are just a few reasons why a company should have such plans in place:
- Identifying uninsurable risks: insurance policies do not cover all the risks a company may face. Resilience plans also identify and prepare the company for risks that may not be covered by standard insurance policies.
- Minimizing business downtime: the procedures and strategies put in place in resilience plans enable the company’s operations to resume more quickly following a disruptive event.
- Maintaining stakeholder confidence: a company’s ability to cope with crises and maintain operations influences the confidence of customers, employees, business partners and investors. Plans help maintain this confidence by demonstrating effective prevention and response capability.
- Regulatory compliance: some sectors require companies to have resilience plans to comply with current standards and regulations.
In addition, insurers may audit resilience plans to assess insurable risk and the company’s level of preparedness, at the time of policy renewal or following a claim. It is therefore essential to understand that the role of insurers is not usually to manage a crisis directly, but rather to provide additional financial support.
Conclusion
In short, insurance should be seen as a complementary tool to resilience plans, rather than the only approach to be considered in the event of an emergency. By combining these two approaches, a company can strengthen its ability to overcome challenges and thrive in a changing business environment.
If you need expert support in developing your resilience plans, or advice tailored to your specific situation, contact us today at [email protected].