Insurance in its simplest definition is a paid promise. It protects, it restores or indemnifies. For most business enterprises, Profit is revenue less cost. In ordinary business operations the mantra has been to increase revenue and maximize long term owner value.
However a key watch should be on the cost components of a firm in order to realize these objectives. Some key components of cost can however have devastating consequences on the bottom-line of a company especially a start-up. This is where revenue protection and cost minimization tools or systems are much needed. The most trusted tool in this regard is insurance.
Let’s delve deeper into some of the potential loopholes that escalates cost but of which insurance can mitigate at a minimum and at pre-budgeted cost to the business enterprise.
Employee Injury
Employees are ultimately the number one assets to every business. In Ghana, our law – Workmens Compensation law, 1987; PNDL 187 is clear when it comes to placing blame, with regards to injury, in the line of work. Compensation of injured employees is compulsory. By definition, Employee is anyone under a contract of service or apprenticeship. This definition makes the classification of ‘employee’ broad. Death, injury and diseases sustained at work thus should be compensated by the employer.
Possible day-to-day examples are slip and fall, burns, extreme stress, deafness, vibration white finger, etc. Some occupations that are quite predisposed to work injuries include factory work, construction, bakery, water works, oil and gas, aviation, etc. Employee compensation amounts could be astronomical and threaten any employer’s coffers. Fortunately, Insurance of workmen is available and at a cheaper cost. Why not insure your employees!!!
Material Damage to Stock / Contents
Fire, they say, is a good servant but can be a bad master. All of a business’s stock-in trade can be lost through fire and any other perils: flood, malicious damage and burglary. The contents of an office ranging from furniture, computers, IT devices could be wiped out in the event of a mishap. Insurance will either pay up or replace the lost /damaged items.
Business Interruption
In some instances, the after-effect of a peril like fire on the business can have far reaching consequences on the bottom line than even the cost of replacing the damaged items. Some customers of the business may find the services of other competitors appealing and may not return, and the business can also lose some key staff. It’s no chutzpah to consider insuring your firm’s consequential pecuniary losses.
Advanced Loss of Profit
Endowment policies mitigate against this potential loss. Some finance rookies juxtapose endowment policies with Treasury bills. This is indeed very misleading. There is a ‘magic’ with endowment policies. These policies guarantee a future sum insured from the onset of the contract. In the event of a demise of trader or business owner the set sum assured is paid out and their project still continues unabated.
Insurance thus help protect the purse of the astute business enterprise. It frees the enterprise of possible contingencies and act as a capital surrogate for businesses.
