How risky is your business? The answer to this question can have a big impact on your insurance premiums. If your business takes needless risks, your insurance premiums can skyrocket.
When you try to avoid risks, you proactively prevent claims from being filed against you and your business. And when you have fewer claims filed, you help your insurance premiums go down and make your company easier to insure.
That’s what risk avoidance is all about. It’s recognizing that there are steps you can take to avoid getting sued or filing claims, and then doing those things.
What Exactly is Risk Avoidance?
Risk avoidance is the practice of eliminating or minimizing potential risks to your business. Risks include things like employee injuries, theft, cybercrimes and more.
You can avoid risks in many ways, like:
- Not working with hazardous chemicals
- Avoiding products with known issues products
- Not offering delivery or other services that put your employees on the road
- Keeping less customer data stored in your systems
- Doing a risk analysis before adding services or products
You’ll never get rid of all the risks. But making it a habit to avoid risks as much as possible helps reduce the chances of things going wrong.
Top Small Business Risks and How to Avoid Them
To help you better understand this risk mitigation strategy, here are some common risks that business owners might choose to avoid.
Employee Injuries
As a business owner, your employees are your most valuable asset. You want to avoid unnecessary risks that could lead to one of your workers getting hurt.
Here are a few things you can do to keep your employees safe:
- Understand potential risks for everyone who works with you
- Make a safe workplace a priority
- Follow all OSHA guidelines
- Train your employees
- Provide appropriate safety and personal protective equipment
- Avoid sending workers out in bad weather
- Secure hazardous materials properly
- Regularly discuss safety and wellness with your team
- Work on projects on-site instead of having employees drive to customers’ houses if possible
- Don’t make your employees work long hours or back-to-back shifts
By making it a point to focus on safety, you’re helping to reduce the chances of someone getting hurt. An accident could still happen. But if it does, it shouldn’t be because of unsafe practices you allowed to go on.
Theft
Your insurance is there to protect you if someone breaks in and steals something from your company. But if something is stolen, you don’t want it to be because you left the door unlocked.
The following steps can help you avoid theft:
- Have a working alarm system
- Install security cameras
- Lock each door and window before you leave
- Create a system for tracking keys or entry cards
- Get background checks on potential employees before you offer them the job
- Bring equipment inside before you close
- Research crime rates in an area before opening up a new location
You’ll also want to think about your specific business. Look at where you’re vulnerable for theft and take steps to secure your assets.
Hurt Customers
An injured customer is one of the most common insurance claims. To help keep your customers safe, here are some risk avoidance strategies to try:
- Have a procedure in place to quickly clean up spills
- Shovel snow off your sidewalks when needed
- Put out ice melt to keep your parking lot from becoming a sheet of ice
- Place items carefully into displays so they can’t fall out and hit someone
- Keep your parking lot well lit
- Have applicable warning labels on products you sell
- Frequently sanitize and keep your business clean
- Regularly inspect your business to look for hazards
- Use hazard signs such as, “CAUTION: Wet Floor” to point out potential hazards to customers
It’s important that you also take time to develop protocols in case someone does get injured in your business. Does your entire staff know what to do if someone falls? If they don’t, train them.
Cybercrimes
Do you collect customer names and email addresses? Whenever you store private data, you’re responsible for keeping it safe. With the rise in cybercrimes and identity theft, part of your job is protecting your employees and customers from hackers.
Here’s what you can do to reduce your risks in this area:
- Review your systems and see what type of data you have
- Purge anything you don’t need
- Stop collecting unnecessary information
- Use strong passwords and keep them secure
- Limit access to customer data
- Use a firewall, anti-virus, and anti-spying software
- Have professionals set up your computer systems to make sure they’re secure
- Don’t transmit sensitive information via email or text
- Make sure sensitive customer data is encrypted
- Have a plan in place in case of a data breach
- Regularly scan your systems for viruses and other problems
Additionally, have high standards for any company you partner with. Make sure they aren’t your weakest link.
Every company has its own unique set of business risks that it needs to avoid. But by thinking strategically and using common sense, you can protect your business and team from potential harm.
Benefits of Risk Avoidance
Opting to avoid risk can be beneficial to your company. Here are a few reasons why:
1. Keeps Insurance Rates Low
One of the main benefits of avoiding risks is that it helps you keep your insurance rates as low as possible. When you can show an insurer that you’ve done everything in your power to minimize your risk exposures, you’re more likely to qualify for lower premiums. That’s because insurers feel they’re less likely to make payouts for you.
Minimizing your risks generally also leads to fewer claims. The fewer claims your business has on record, the more insurers see you as being a lower risk to insure. This also helps get you the best rates.
2. Protects Employees
Employees are one of your company’s biggest assets. By implementing a risk avoidance strategy, you can help protect them from potential harm.
3. Helps You Avoid Costly Accidents and Lawsuits
The cost of an accident or lawsuit can be devastating to a small business. And while business insurance helps minimize your financial risk, having claims filed against you can cause your insurance premiums to skyrocket. It can also harm your reputation as a business owner.
Having insurance is important. But all the insurance in the world won’t help if you run your business carelessly. That’s why your goal should be to prevent getting sued in the first place. Avoiding risks can help you do that.
Alternatives to Risk Avoidance
Risk avoidance is one type of risk mitigation strategy. But, it’s not the only one. It’s also not the best choice in some situations. Why? Because if you avoid all risks, you might be limiting your business’ potential.
For example, if you avoid building an email list because you don’t want to worry about keeping that information secure, you’re missing out on an opportunity to connect with your customers. Or if you decide not to offer mobile services because you don’t want your employees to accidentally cause damage in someone’s house, you’re losing a profitable income stream.
Too much fear of risk can hold you back. That’s why your risk management plan can include several different strategies. Here are four others to consider in addition to risk avoidance:
1. Risk Transfer
When you transfer risk, you pass it along to someone else. For a business, this is commonly done by purchasing the right types of insurance. That way, if something happens or you get sued, your insurance policy offers protection. This transfers your financial risk to the insurance company and can protect your organization’s assets.
As a business owner, you make sure you have the right insurance coverage. You may need multiple policies to ensure you’re fully protected. Some common ones include:
- Business Owners Policy
- Errors and Omissions
- Hazard Insurance
- Workers’ Compensation Insurance
- Employee Benefits Liability Insurance
If you have questions about what insurance you need, speak to a broker who specializes in business insurance.
2. Risk Reduction
Part of your risk management strategy should include risk reduction, a.k.a. taking steps to minimize risks.
The first step in this process is identifying the risks that could come your way. You can do that through a risk assessment or by auditing your company to see what risks you’ve dealt with in the past.
Once you’ve identified the risks for your business, you can come up with ways to lower the likelihood they’ll happen.
For instance, to minimize cybersecurity risks, you’d want to ensure your information security systems are up to date. You’d also want to train your employees on these systems so everyone knows how to securely handle customer information.
Those tasks help minimize the risk of hacking. There are other steps you can take for other particular risks. For instance, you can:
- Update your company’s safety policies and procedures to ensure they’re up-to-date
- Train your staff on any new equipment you purchase to minimize injuries
- Store your assets securely to help minimize the risk of theft
- Maintain a paper trail to help avoid contract disagreements
- Offer training for your clients to help them safely use your products
Make identifying risks a regular part of your weekly or monthly meetings with your team—you can even make it a daily practice if you think your small business faces a lot of risk. That way you can come up with strategies as risks arise, helping to prevent them from occurring.
3. Risk Acceptance
When you accept risk, you’re acknowledging that it’s a part of doing business. You can’t avoid every problem that comes along, so you must be prepared to deal with the consequences if something goes wrong.
The key is learning which risks you need to accept, and which ones you can avoid, transfer, or reduce. A risk management process can help you decide which path to take for every risk you come across.
Avoid the Right Risks to Lower Your Premiums and Grow Your Business
Running a business is risky. But, you don’t have to stand by and watch helplessly as your employees get hurt or your company gets robbed. You can proactively identify potential risks and take care of them.
The more risks you can avoid, the less likely you are to get sued. Insurance companies recognize this so by using a risk avoidance strategy, you can help reduce your insurance premiums. Often the longer you go without a claim, the lower your rates are going to be.
Plus, your employees and customers stay safe and you pay less. That’s a win-win!
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