Types of Business Insurance.
Insurance, previously presented as a risk transfer mechanism, is one way, among several others, by which a business owner can use to manage his risks. What then is insurance? What types of insurance are available to aid entrepreneurs in the management of their risks? Is it every risk that the entrepreneur faces that could be insured?
Theoretically all risks are regarded as insurable. However, practical considerations render theoretical position improbable. From an operational point 0f view insurability comes down to a discussion of why insurers may accept some risks and yet reject others.
Mordi (1990) explains that generally pure risks are insurable. This is so because their outcomes are known with their associated probabilities. Thus insurable risks are those risks that can be investigated statistically. These will include some aspect of business risks (though speculative) that can be investigated statistically, such as business interruption risks.
There are several views of insurance. It is viewed as a collective system or social device for pooling of risks and sharing of losses. A legal view of insurance exists. As a contract, it is an agreement between two parties, the insurer and the insured, whereby the insurer agrees to indemnify the insured on the happening of a specified event, say fire, provided that the insured pays a service charge called premium in exchange for promised indemnity.
As could be inferred from the above, insurance being a risk transfer mechanism merely allows the insured to transfer the financial consequences of business operations to the insurer while he retains control of his business operations.
Types of Insurance Products Available to Entrepreneurs.
This is a life assurance protection. The contingency covered is the risk of death. Mortality risk is a universal experience everybody faces on daily basis. Man is kept humble by the knowledge of the fact of his own mortality. He is further humbled because he does not even know for certain the very day and hour of his demise. Important to him is the fact that his demise may create some economic hardship for the family. This hardship can be mitigated through whole life policy.
In its basic form, the cover provides a stated sum assured to be paid to the legal representatives of the entrepreneur assured at the event of death• Payment of the benefit can be made only when the life assured expires and not before it does.
This is essentially a modification of the whole life policy. It promises payment of a stated sum assured to the life assured if he survives till a stated date or to a named beneficiary in case he is deceased before the date. The policy offers both a protection and an investment window. As an investment it can be employed to provide a future business capital being a savings instrument. Or it may be useful towards providing for pension for staff.
Workmen’s Compensation Insurance.
Accidental injury or diseases at work place leading to physical incapacitation or death are the perils that the employee faces. The rise in the level of social responsibility of employers, overtime, made them assume the consequences of these perils on behalf of the employees. The costs are provided for by the employer through Workmen’s Compensation It is arranged for the benefit of employees at the expense of the employer.
Product Liability Insurance.
Makers or producers of products may be held liable in law for the defects that may be inherent in their products. For instance, a gardener who markets his tomatoes or garden eggs may be taken to court by a customer on charges of food poisoning. In countries where strict adherence to product quality is upheld, the marketer may be held to pay heavy damages awarded by the court. These probable judgment debts can be provided for by taking out product liability insurance.
Public Liability Insurance.
In law, a business owner is assumed to have given invitation to members of the public who may be on his business premises for lawful reasons..He is therefore obliged to provide a safe business environment for those who come to his premises (factory) for business ends. Any accidental injury to be traceable to his failure to provide a safe environment is actionable by any member of the public who happens to sustain such an injury. Again, this contingency can be Insured against by the purchase of public liability insurance.
This policy covers the possible loss of business assets occasioned by accident while transporting them from point to another. Goods-in-transit may also be subject to the activities of armed bandits leading to their expropriation.
This policy protects the entrepreneur against the risks of losing his money in transit to and fro bank, say. It may happen that money withdrawn from bank to pay staff salary is stolen during transit by armed robbers as is common nowadays.
Fidelity Guarantee Insurance.
Such acts of employee leading to loss of business assets are covered by this policy. Business movable assets such as motor vehicles, fixtures and fittings, and furniture may be expropriated by staff. Funds belonging to the enterprise may also be embezzled. To protect himself against these perils, the employer secures a cover called Fidelity Guarantee policy.
Plants, Machinery and Motor Vehicle.
The policies to be obtained are intended to cover all risks that attach from ownership of plants, machinery and motor vehicle. The risks covered span the gamut, the marine risks involved in the importation of the machinery and other risks incidental to their use. Consequently, the following policies are usually arranged.
- Marine Policies.
- Machinery Breakdown Insurance.
- Fire and Special Perils Insurance.
- Theft/Burglary Insurance.
- Road Traffic Insurance.
Entrepreneurship and Risk-taking.
Entrepreneurship is a process in which the entrepreneur establishes new jobs and firms, new and growing organizations associate with risk-taking by using new and creative ideas and identification of the new opportunities and resources mobilization. In Britain encyclopedia, entrepreneur means “a person who organizes and manages a job or economic association and receives risks”.
An entrepreneur is said to be a risk-taker because of his ability to withstand the fear of uncertainty and potential failure. Entrepreneurs operate in an environment where they compete with others for market and valuable resources, making them to give in the best be willing to bear moderate risks in order to have a high return on capital invested into the business.