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When doing business, insurance is a helpful resource for companies to protect themselves against different kinds of risks. A lawsuit or even an emergency such as fire can bring significant financial damages to an organization, especially if it is a small business. Today, there is a range of insurance types for protecting businesses. The list of these solutions is presented below:
- Commercial property insurance. This type of insurance is imperative to have to protect buildings, infrastructure, furniture, and other property owned by a company. When insuring commercial property, businesses should consider the following risks:
- Age of buildings. This factor is usually taken into account because some buildings may have greater likelihoods of being damaged. For instance, old electrical wiring may cause a fire, which will then translate into expensive repairs, especially if there is a need to complete new wiring according to code.
- Location and size. The larger the space owned by a company, the more it will cost. Also, depending on the rates of crime in a specific location or the prevalence of natural disasters, insurance companies will charge different prices.
- Types of equipment. This aspect is especially important to businesses that manufacture products. Large industrial equipment usually costs more to ensure in contrast to smaller machinery.
- Age of equipment. Similar to the factor of buildings’ age, insurers look at how old the equipment of a company is. This is so because higher premiums will be needed if the equipment is old and hard to repair, or even may need replacing.
- IT Insurance. This category of business insurance is tricky because there is a lack of coverage when it comes to losing information and not all insurance companies agree to take the risk. However, data has value, and those companies that protect it usually put a specific dollar amount on the information that a company has.
- Company vehicle insurance. For many companies, especially those that deal with distribution and logistics, ensuring vehicles is imperative. On the one hand, if cars owned by a company are titled in the name of that company, these commercial vehicles require insurance for complete coverage. When insuring a business for different risks, it is important to consider a variety of risks that can take place. Most of the risks can be addressed with implementing appropriate precautions, planning, and getting the right insurance coverage. The list of possible business risks to consider for insurance is presented below:
- Property damage. There is a variety of reasons for property damage, ranging from natural disasters to arsons. Because many companies do not have comprehensive continuity plans, insuring themselves against the damage of property.
- Data breaches. With the growing expansion of technologies and the ongoing cyber-attacks on businesses, companies have to protect themselves against such risks. Unfortunately, there is no comprehensive approach to cyber insurance, which means that this risk remains the least addressed.
- Human capital costs. This risk is associated with human errors done by companies’ employees. Whether a worker is responsible for performing labor-intensive tasks or driving a delivery vehicle, there are always risks of errors, misconduct, or fraud.
- Mistakes in professional services. This risk is especially relevant among companies that offer accounting, consultation, web development, marketing, and other services. However, apart from the risks associated with mistakes, customers can initiate lawsuits even if they are generally unsatisfied with the services they were offered. In any instance, unwarranted lawsuits can be disrupting to a business in terms of financial resources and time.
- Issues of international manufacturing and transportation (transit/exports). In cases when companies utilize foreign factories to manufacture products or if they export internationally, there are different risks. For instance, products can get damaged during transportation, vehicles can get lost on their track and cause delays, and so on. Insuring against such risks is important, especially since international operations are more problematic than domestic.
Mapping Assets to Threats
Mapping assets to threats lies at the base of all security assessments, and is especially relevant in business insurance. The end goal of the process is finding a finite set of assets and a finite set of threats to create a workable matrix explaining their interactions.
- It starts with the identification of different asset types, which are usually differentiated into hardware, software, and information a company owns. Also, within each category, there may be various sub-categories and groupings necessary to make to identify asset types.
- Next, the identification of threats is completed. If there is an agreement to follow the CIA model, then all business risks can be divided into confidentiality, integrity, and availability categories. Other approaches to defining business threats can classify such risks as human resources, infrastructure, and data. Therefore, mapping assets to risks means aligning different assents that a company has with risks to which the assets may be exposed.
Considering Asset Values
The aim of insurance policies is providing a replacement for damaged, lost, or destroyed assets. Because of the wide variety of assets and different values they have, it is important to consider which value should be taken into account when insuring companies. Examples are presented below:
Replacement cost value. In regards to this point, insurance companies compensate an insured party based on the cost necessary for replacing an asset with the same or similar value. Replacement cost values are not fixed because fluctuations in the market make prices go down and up.
Actual cash value. This aspect is different from the replacement cost value because it considers the depreciation of an asset that has been purchased for cash. Thus, while the cash value will be sustained, it does not mean that the company will be able to make a replacement due to depreciation.
Book value. This type of value accounts for the determination of how much an asset will be valued on the company’s books. Therefore, the book value allows companies to be completely reimbursed for the loss or damage of assets.
Risks Associated with Automation
As mentioned previously, technologies have been developing to support businesses by reducing their costs and increasing efficiency. However, with the development of Artificial Intelligence and highly effective robotics, several work lines in the wider economy are becoming more and more automated. With this automation come new risks apart from cyber attacks. There are several reasons why intelligent robotics presents some benefits for many businesses:
- The improvement of company efficiency and decreasing the risks of injuries;
- Undertaking a wide range of repetitive, dangerous, and strenuous assignments;
- Allowing individuals to look for more fulfilling employment.
Nevertheless, researchers showed that increased automation poses a threat to high-skilled workers, especially in cases when machines take much less time to complete complex tasks compared to humans. In the next twenty years, there is a risk of almost half of the jobs in the US being automated. While it may be confusing to see why automation can be risky for businesses, there is a list of threats associated with this problem. Today, no insurance for automation-related risks exists. However, as more and more companies invest in AI and other solutions, they will be exposed to some major threats. In particular, a large shift in the labor market can result in the following:
- The decrease in personal and employees’ liability insurance will decrease, thus making companies accountable for any labor-related accidents;
- High rates of unemployment leading to social, political, and economic unrest, which subsequently lead to the damage of businesses’ property, fraudulent activities, and business interruptions. This risk is especially complex because insurers usually avoid covering such risks as terrorism or public unrest. If unemployment leads to strikes and protests, many businesses ranging from 7/11 shops to large supermarkets may experience high-value property damage and interruptions in operations. Importantly, companies will need to ensure that their automation supplements human labor instead of making it obsolete.
- The increase of cyber-related risks targeted at disrupting the automation process. As businesses become automated, cyber criminals will target AI systems to cause disruption and pursue financial gains. Cyber risk insurance
- The high demand for cyber-related insurance among companies will lead to insurers raising prices thus increasing the costs businesses will pay for coverage. The increase of costs companies will pay for insurance and covering uninsured risks in cases when accidents and other unpredicted situations occur.
Because there will be a dramatic shift in labor organization and the way companies will prioritize machinery over human labor, structural shifts in the overall economy will take place. This will lead to the raise of potential new avenues in business insurance. Some examples are below:
Start-ups and small companies may expand the demand for insurance. This spike in demand will be associated with sectors offering equipment for the entertainment and leisure industry. Insurance, in this case, will be important because higher responsibility will be placed on machinery, and risks of accidents should be insured.
Changing nature of insurance coverage. Both small and large companies will require more sophisticated coverage in regards to the use of IT systems, AI, and overall automation. Any disruptions will cause businesses to lose money and time, which is always an issue in terms of profitability.
Insurance Audits for Automation Risks
It is a common practice for insurance companies to audit businesses. In a case when a company purchased a commercial insurance policy, not all premiums assigned are final but are rather estimates because carriers usually make informed guesses based on the previous business activities. As businesses change, estimates can become irrelevant, which means that premiums should change. The purpose of an insurance audit is to review actual data on operations and sales to identify the accuracy of estimated premiums. At the moment, there are no audits to target machinery-associated insurance programs due to the lack of development in this area. It is expected that insurance audits for machinery-based risks will develop because predicting the premiums for such risks is near to impossible. Because of this, audits will be necessary to continuously evaluate the applicability of premiums.