Risk management is an important aspect of doing business that agency owners in San Diego seldom think about. Risk is an unavoidable part of life. Think about all the potential hazards you purposely avoid as you get out of bed and make your way to work each day. Whether we realize it or not, our lives are guided by certain principles of risk management.
In the business world, risks are measured and quantified for the purpose of efficient management. One key measurement in this regard is the total cost of risk, which can be calculated as a dollar value for implementing adequate risk management strategies. Here are a few things business owners should know about total cost of risk.
The Costs Involved
Calculating total cost of risk can be achieved by means of adding up the following items:
- Expenses needed to control risks
- Insurance deductibles and items not covered
- Policy premiums
Once the above items are added up, the next step would be to think about ways to reduce the sum.
Business owners who only purchase enough insurance to get permits and licenses are often at risk of complex losses. An example would be a warehouse accident involving a damaged forklift, an injured worker, and destroyed inventory. In this case, San Diego workers’ compensation, equipment coverage and inventory protection may cover some of the loss, but what about the cost of lost productivity while the employee is recovering plus the time it will take to replace the destroyed goods? If the total cost of risk was not properly measured and mitigated beforehand, the agency would have to sustain a complex loss that could put it out of business.
Reducing the Total Cost of Risk
Business owners should not automatically assume insurance agents are trying to sell them additional coverage by calculating total cost of risk. In some cases, premiums can be reduced with certain business measures. For example, a pizza shop that uses a 2000 Honda Civic for deliveries should realize this is the most stolen vehicle model in San Diego. The insurance agency certainly knows this and could reduce the San Diego commercial auto insurance premium if the business owner agrees to put a less risky car into service.
How to Implement Strategies to Reduce the Cost of Risk
When calculating total cost of risk, it is important to look at previous years and create a forecast for the next two to three years. Everything must be taken into account, from the potential loss of productivity to the cost of retaining an attorney in case of an unforeseen lawsuit for which there is no insurance coverage. Purchasing additional coverage should not be the only risk mitigation strategy. For instance, in the case of a warehouse, purchasing safety equipment could actually lower premiums while protecting employees and reducing potential losses.
Commercial insurance isn’t the only essential coverage for business owners in San Diego. Auto insurance is also necessary if you drive your vehicle to work or even just on the weekends. If you’d like a free quote on commercial or auto insurance, call Tri-Star Insurance at 619-272-2100. We hope to hear from you soon.