INSURANCE BUSINESS RISKS.

Businesses are likely to encounter various risks when trading. Because of this, most cautious
business owners are likely to take out insurance policies to protect themselves from financial
losses that occur when these risks take place. Different types of businesses require different types
of insurance. Below are the common types of business insurance.

Premises.

This is where a business trades from. It includes shops, offices, factories or a distribution center.
Protection against the loss of premises is important.

A premises insurance Is used to cover the risk of damage to the premises and property belonging
to the business as well as the inventory, machinery and equipment it holds.

Two types of premises insurance include;

 Buildings insurance
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 Contents insurance
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Buildings insurance covers the cost of any repairs to the building itself in the event of a loss.

Contents insurance covers the cost of replacing inventory, tools, equipment, computers, etc, if
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damaged or stolen.

Theft.

Inventory, equipment or cash may be stolen by shoppers or employees from the business. Theft
is more likely if the security of the business is poor. Because of this insurance against theft is
very important.

The insurance cover for theft may be included in some of the policies used for the contents
insurance discussed above. However, there are other specialist covers available for insuring
against theft. In many countries it is not possible to insure against theft alone. Therefore, theft is
included in another policy. E.g. a stock insurance policy may be extended to cover the theft of
equipment and tools.
Motor.

Most businesses own vehicles such as cars, vans, lorries, etc. In many countries, it is a
requirement by the law for owners and drivers of vehicles to have an insurance cover.

There are three common types of motor insurance namely;

 Third party insurance

Third party insurance provides cover for claims made by others (third parties) who are
involved in an accident. Third parties are persons who suffer a loss through injury or damage to
the vehicle if the insured was responsible for the accident.

Third party, fire and theft insurance covers fire damage and the theft of business vehicles in
addition to third party insurance. ON
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Comprehensive insurance covers accidental damage including fire damage to the insured’s
vehicle in addition to claims made by third parties. It also covers injury to the insured driver and
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any theft of both the vehicle and its contents.

NB: the premiums of each cover increase as the level of protection increases.
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Marine.

Marine insurance provides cover for the shipping industry. It provides protection for the damage
of ships and loss of cargo. Below are four important types of marine insurance;

Hull insurance. This policy covers damage to the ship’s infrastructure including all fixtures and
fittings.

Cargo insurance. This policy covers the loss of a ship’s cargo. It is used by the shipping
companies to provide protection against the loss or damage of goods in transit.

Freight insurance. This policy offers protection against the loss of freight money if the ship
owner cannot deliver cargo because of unavoidable circumstances.
Ship owner’s liability. This policy protects the ship owner from a variety of hazardous events
related specifically to shipping. E.g. damage from collisions at sea, injury to passengers and
crew, pollution caused by shipping activities, etc.

Fire.

Fires could destroy a whole factory, inventory, equipment, tools and machinery. Generally, losses
due to fire are covered by premises insurance.

Consequential loss.

This policy provides cover to a business that is unable to trade from its usual premises. It
provides financial compensation for the loss of earnings resulting from the damage to premises
or equipment in the business that results from fire, power cuts, etc.

NB: A loss has to be indirect for it to qualify as a consequential loss. The loss of earning because
a business cannot trade is an indirect loss. ON
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Employer’s liability.
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Some work environments may be hazardous. E.g. construction sites, factories, laboratories, etc.
high-risk injuries may occur to employees working in such environments. An employer’s
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liability insurance is used to provide cover for claims made by employees if they are injured in
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such hazardous environments.

Public liability.

Sometimes members of the public may be exposed to various risks from businesses. E.g.
pollution, damage to their property, injuries and accidents due to business negligence, etc.

A public liability insurance provides cover for the cost of legal action and compensation claims
made by members of the public who suffer losses from the operations of nearby business.

Product liability.

Product liability insurance provides cover for claims made by customers who suffer losses from
the purchase of faulty products from the business. This protection covers all legal costs and
compensations paid to the customers.
Fidelity guarantee.

Fidelity guarantee insurance protects the business from the risk of losses caused fraud and
employee dishonesty. This cover is needed when members of staff have the opportunity to steal
cash and other valuable assets from the business.

Credit insurance.

This policy covers the business from losses resulting from bad debts. These are the debts which
customers have failed to pay.

This policy is more popular with exporters because it is much harder to collect debts from
customers in other countries.

Plate glass.

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Plate glass insurance provides cover for replacing cracked or smashed windows in buildings.
Windows may be put at risks from protests, vehicles driving through, etc.
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Chapter questions.
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