When contemplating a possible major accident, lawsuit, fire or cyberattack, it’s easy for an executive or owner to comfort herself with the thought, “Well, we’ve got insurance, so if something happens we’re covered.” While it’s certainly preferable to have insurance in such an event, it’s important to understand that many costs accompanying major losses are not reimbursed by insurance.
These hidden costs are expenses that are often unforeseen, yet potentially costly. These expenditures of time and money fall outside the normal costs of your insurance. And if unplanned for, they can put your organization in the red.
This post dives into exactly what hidden costs business owners should know about when purchasing insurance coverage.
1. Management and Staff Time
When a large loss to your property occurs, many hours of your time will be spent with adjusters, appraisers, forensic accountants (for the business income portion of the claim), debris removal contractors, architects, engineers, building contractors, equipment vendors and (potentially) public officials.
All of these interactions require time away from your business—and that time can be costly. As another example, a liability claim can involve depositions, investigations, meetings with attorneys and mediation sessions or court appearances.
A data breach might demand time spent with forensic data experts, overtime for internal and external IT staff, and legal issues that vary by state.
A major workers’ compensation claim will involve OSHA reporting (and perhaps investigations), communication with the medical team, communication with the injured employee, and implementation and monitoring of early return to work measures.
2. Public Relations Hits
Depending on the nature of a loss, your organization’s image and reputation among your community, customers and industry could take a serious hit. Such a setback could impact future income and business opportunities.
Take the retailer Target. The company is synonymous with the phrase “data breach” after a massive one occurred in 2013 and dominated headlines thereafter. Or look at oil company Exxon: the public still associates the firm with a disastrous spill that occurred in 1989.
Damage to your public image can last for years or decades. And if you employ a PR firm to mitigate the impact, you’ll have to pay them. You’ll also need to work closely with them, which costs you and your team more time.
3. Employee Morale Issues
If your organization is in the news for its involvement in a tragic accident or major loss, your employees may find themselves distracted or dismayed at work. They might also need to explain the loss to family and friends. Suddenly, they find themselves associated with whatever bad event happened.
Prospective new hires may even avoid applying to your organization, making the situation worse. Poor employee morale is a real issue with real consequences, and it requires time and money to address.
4. Insurance Transaction Costs
Most insurance coverages provided are subject to a deductible and/or coinsurance, and you’ll find yourself paying part of a direct loss right out of pocket. This can sometimes be a substantial sum. The paid claim will count against your loss history, which can have a significant impact on the affordability or availability of similar insurance coverages for years to come.
In other words, just because you have insurance doesn’t mean you won’t incur additional costs during an insurance event.
Other Hidden Costs to Consider
While you and your staff are handling all the hidden costs above, there is also an obvious opportunity cost. You could have been working on the next great innovation in your business, if you hadn’t been distracted by the loss.
This indicates a bigger point: buying insurance is never enough. You need a comprehensive approach to commercial risk management, one that includes a robust loss control and safety management component. This type of approach will also identify risks that exist but can be transferred or avoided.
To avoid being surprised by losses, prepare for them—and the hidden costs that come with them. To do that, consult with an insurance expert who knows how to approach risk comprehensively.
At INGUARD, we specialize in risk management strategies that protect businesses from loss and prepare them for all the costs associated with risk. Schedule a free consultation today.
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