Not so long ago only larger companies saw the need for Management Liability insurance – the umbrella term for a range of covers that can include Directors and Officers (D&O) Liability, Employment Practices Liability (EPL), Statutory Liability, Company/Entity cover, Fidelity, Tax Audit, Trustees Liability and Internet Liability.
But recent changes to regulations – such as new work health safety (WHS) legislation, the Food Act and the Fair Work Act – coupled with a more litigious society have created increased exposures for small-to-medium-sized enterprises (SMEs).
Without some of these insurance covers in place, smaller businesses often don’t have deep enough pockets to stay viable following a hefty fine and/or expensive legal fees.
Weighing up the risks
Statutory exposures are a good case in point because the information from court proceedings is readily available in the public domain. For example, in September 2013, a NSW company was fined $80,000 when one of its workers was injured using a client’s forklift to unload bread from a truck. While the forklift’s broken handbrake was the primary cause of the incident, the judge found employer Levira culpable.
Prosecutions under the Food Act can also carry large fines and incur significant legal fees, with food manufacturers, restaurants/cafes, retailers and wholesalers all at risk of prosecution.
Some people are innately risk averse. Their brains are so focused on avoiding loss at all costs to the point they miss out on some great opportunities. Others throw caution to the wind way too often and dwindle their resources to the detriment of their business.
Risk taking is not something that you learn at school or that the majority of people understand all that well.
While some risks are overt – usually because they involve spending money (e.g. investing in a new computer system or hiring extra staff members) – others are not so obvious, like forgetting to make that follow-up call and missing out on new business.
Some business risks can be eliminated or significantly mitigated with insurance. Given the significant levels of underinsurance amongst SMEs, it’s important for small business owners to get professional help with their business insurance plan. An insurance broker will ensure all the business’ risk bases are covered in much the same way an accountant checks the books add up.
Knowing how your brain is hardwired when it comes to risk can help you make smarter decisions in your small business dealings. For example, if you are overly risk averse, hiring a business coach or enrolling in a marketing course could help to improve your business performance. On the flip side, if you are taking too many risks some strategies to moderate your behaviour could be in order.
To help SME owners and people thinking of starting a new business better understand their risk appetite and behaviours, Lumley Insurance recently launched a free new digital tool called RiskSmart Profiler.
RiskSmart Profiler works on all mobile devices (including Apple and android) as well as your desktop computer. It incorporates a quiz, using the DOSPERT scale, which is hosted by The Center for Decision Sciences at Columbia Business School in the US.
Developed by a team of psychologists from several reputable North American universities and research centres, the scale looks at five key life areas: financial decisions, health/safety, recreational, ethical and social decisions.
After completing the quick quiz, individuals find out how they rank on the risk scale against the norm in all five key areas. The tool also provides suggestions for improving your business risk taking, including a range of insurance solutions and a handy search function for finding an insurance broker.
Organisational psychologist Kirsty Bucknell, who helped develop the tool, says people tend to approach risk differently according to the context. For example, they might be highly conservative financially but drink heavily in social situations; the key is to strike the right balance in line with your objectives and expectations.
David Partridge is the senior marketing manager for Lumley Insurance.