6 Costly Mistakes CEOs Make Managing Business Insurance and How to Avoid Them Use this guide to sidestep the most common errors that business leaders make when managing insurance costs.
By Trent Bryson •
Opinions expressed by Entrepreneur contributors are their own.
Insurance costs can have a significant impact on a company's bottom line, affecting profitability, growth, and overall financial health. While insurance is a critical component of risk management, many CEOs inadvertently make costly mistakes when handling their insurance policies. Here are some of the biggest mistakes CEOs make with managing insurance costs and how you can avoid them with the help of a claims resolution team on your broker's side.
1. Neglecting regular policy reviews
One of the most common mistakes CEOs make is failing to conduct regular reviews of their insurance policies. Business operations, risks, and industry dynamics can change over time, which may render current insurance coverage inadequate or mismatched with actual needs. A CEO who neglects to reassess insurance policies may miss opportunities to optimize coverage and potentially overpay for unnecessary or redundant coverage.
Solution: CEOs should prioritize annual or semi-annual policy reviews with their insurance broker. These reviews can identify coverage gaps, adjust limits, and tailor policies to align with the evolving risk profile of the business.
2. Focusing solely on premium costs
A narrow focus on reducing premium costs can lead CEOs to underestimate the importance of comprehensive coverage. Opting for cheaper policies without considering coverage limits and exclusions can leave a company vulnerable to unexpected losses.
Solution: Instead of fixating solely on premium costs, CEOs should work closely with their insurance broker to strike a balance between affordability and robust coverage that adequately protects the business.
Related: How Private Companies Can Overcome the Challenges of Increasing Insurance Rates
3. Misjudging risk exposures
Inaccurately assessing the company's risk exposures is another significant error CEOs may make. Underestimating potential risks could result in underinsuring the business, while overestimating risks may lead to purchasing excessive coverage.
Solution: Engaging in a comprehensive risk assessment with the assistance of an experienced insurance broker can help CEOs gain a clearer understanding of their company's vulnerabilities and select appropriate coverage levels.
Get a business insurance quote in 3 simple steps
4. Overlooking the Importance of Claims Resolution
A critical mistake often made by CEOs is neglecting the significance of claims resolution when choosing an insurance policy. Claims are inevitable in the business world, and a lack of efficient claims resolution can disrupt operations, strain relationships, and lead to financial losses.
Solution: Having a dedicated claims resolution team on your insurance broker's side is essential. A skilled claims resolution team can provide guidance on the strategic containment of claims by way of risk transfer and risk retention as well as streamline the claims process, advocate for your company's best interests, and ensure that legitimate claims are settled promptly and fairly.
By overlooking the importance of claims resolution when selecting an insurance policy, CEOs put their companies at risk. It is crucial to understand that claims are bound to occur in the business world, and how efficiently they are resolved can have a significant impact on various aspects of the company.
Related: 7 Books Every CEO Should Read
One of the most immediate consequences of neglecting claims resolution is the disruption it can cause to operations. When a claim arises, it requires time and resources to address it, diverting attention away from core activities. This can lead to delays, decreased productivity, and potential loss of business opportunities. Having a dedicated claims resolution team helps alleviate this burden by handling the entire process efficiently.
Additionally, neglecting claims resolution can strain relationships with stakeholders. Whether it is customers, suppliers, or partners, unresolved claims create tension and dissatisfaction. This can harm the company's reputation and lead to a loss of trust, potentially impacting future partnerships and collaborations. A skilled claims resolution team can effectively communicate with involved parties, ensuring that concerns are addressed promptly, and relationships are maintained.
Financial losses are another consequence of overlooking claims resolution. Inefficient handling of claims can result in delayed or denied settlements, leading to financial strain for the company. This can include costs associated with legal fees, lost income, or even having to bear the entire burden of a claim that should have been covered by insurance. A dedicated claims resolution team understands the intricacies of insurance policies and can advocate for the company's best interests, ensuring that legitimate claims are settled promptly and fairly.
5. Ignoring risk management strategies
Some CEOs mistakenly believe that purchasing insurance alone is sufficient to manage risks. However, effective risk management strategies can significantly impact insurance costs by reducing the frequency and severity of claims.
Solution: Implementing robust risk management practices, such as workplace safety programs, employee training, and disaster preparedness, can lead to fewer claims and potentially lower insurance premiums.
6. Failing to build a strong broker relationship
A lack of communication and collaboration between CEOs and their insurance brokers can lead to missed opportunities and suboptimal policy choices. CEOs who do not invest time in building a strong broker relationship may not fully leverage the expertise and insights their broker can provide.
Solution: Regular communication and a strong working relationship with an experienced insurance broker can lead to better policy customization, competitive pricing, and access to the latest industry trends and best practices.
Related: 4 Things You Must Not Forget When Starting a Business
Find the right experts to protect your future
Managing insurance costs is a complex endeavor that requires careful consideration and strategic decision-making. CEOs who avoid common mistakes such as neglecting policy reviews, focusing solely on premiums, misjudging risk exposures, overlooking claims resolution, ignoring risk management, and failing to cultivate a strong broker relationship can create a more effective and financially secure insurance strategy. By partnering with an experienced insurance broker armed with a dedicated claims resolution team, CEOs can navigate the complexities of insurance with confidence, ultimately safeguarding their company's future.
To speak to an expert about managing your business insurance, click here.
