July 2007 NEWSLETTER: 5 Minutes to Improve ...
"5 Minutes to Improve ..."
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July 2007: 5 Minutes to Improve ... your Insurance Coverage
This month's '5 Minutes to Improve ...' idea is to review your insurance coverage to protect your organization, and also the people that it impacts.
Do you have adequate insurance for all of your activities? Not just your day-to-day operations, but every event and special activity that you hold or are associated with? If not, you may be putting both your organization and the well being of others at unnecessary risk.
A recent news item illustrates, tragically.
A charity car show for kids went tragically wrong, leaving at least 6 people dead when a drag racing car lost control and spun into the crowd. The not-for-profit organization that staged the event, Cars for Kids, did not have insurance. "We never had insurance, we're just a group of people raising money," said one of the organizers.
Lawsuits, investigations and regulatory actions are all following the events of this terrible day, and at least two things are for sure: the organization, despite its good intentions and an 18-year track record of staging this event, is done; and, several families are left without compensation for their loss.
Now, we can debate the merits of this charity and event; whether all reasonable safety precautions were taken; who exactly was at fault for the accident; and so on. But the bottom line remains the same. This tragedy has claimed more than just the lives lost.
How could insurance have helped?
Sufficient liability insurance in this case would have had at least two positive impacts.
First, the families impacted by this accident would have a source of compensation. Of course, this never makes up for the loss of a loved one. But, it can at least alleviate the financial impacts of the loss, and remove one added pressure on these families at a terribly difficult time.
Second, the organization itself would have likely been protected. Families could have been compensated without taking down a not-for-profit organization in the process.
But, there is a third benefit, one potentially more valuable than these two: the process of arranging insurance - that is, evaluating the risks involved and working to minimize and then insure them - might have helped to avoid this disaster altogether. Insurance is just one component of managing risk, and a more thoughtful, determined approach to the risks of this event might well have changed more than just the insurance situation. Maybe better crowd control; maybe more direction to the drivers; maybe putting barriers in place; or, maybe some other change to the event's staging would have changed the outcome of this day altogether.
Cost
So what does insurance cost for an event like this? It depends on all sorts of factors, but one thing is for sure: it would have been pretty cheap, under the circumstances.
And, the cost, or insurance premium, can tell a lot about the risk being undertaken. A large insurance premium is simply the insurance company's way of saying "high risk". And, that should tell you something right there.
How to proceed
Hopefully this tragic story makes the case for insurance. The way to proceed then?
The best way forward is to find not just a good insurance agent, but a great one - one that becomes your risk management partner. In a perfect world, you would involve your agent in your event planning at its earliest stages, outlining your plans and listening carefully to his or her take on the risks. As noted above, the greatest benefit of all can be the opportunity to reduce needless risks in the first place. Not only will this reduce your insurance cost, but it will possibly save so much more grief.
How much is enough?
There is an old saying (by an insurance agent, we imagine!) that you can't have enough insurance. Unfortunately, these days, this statement is sometimes literally true: sometimes you CAN'T get enough insurance! That may have been the case in our tragic case study. But, in many cases, the risks aren't as great as sending an over-powered race car to do tricks on a crowded street. And, the reasonable amount of required insurance IS available. It is all a matter of judgment in the circumstances. And, your knowledge of your event, with the agent's knowledge of insurance can come to a reasonable conclusion on this.
At the low end of the spectrum, there is also a decision to be made. The insurance deductible is designed to ensure that you continue to carry some risk; that you are still "at the table", so to speak, in managing and reducing the risk of loss. And, at a practical level the first dollars of loss are generally the more likely to occur and hence more expensive to insure. As a result, there may be a temptation to have a large deductible, in order to reduce the insurance cost. The trick is to balance this against your organization's capacity to bear the cost of a loss. There is little use in setting the deductible so high that having to pay it out will cripple your organization. On the other hand, setting the deductible at a very low level may cost you almost as much in insurance premium as would the payout of the deductible itself.
Next Steps
If you've got a good agent, pick up the phone right now and set up an appointment to review your annual calendar of activities. If you don't have a good agent, pick up the phone right now and get a referral from a trusted colleague.
A really good insurance agent can help you answer all of your questions. The key is to start talking, budget for coverage, and take a proactive approach to managing these risks. Don't let a terrible accident take more victims than absolutely necessary.
William Harper is a Chartered Accountant and is experienced in all facets of risk management. Call us to discuss how you can better manage your risks.