In March this year, Laxman Dass Raheja’s office, an Airtel distribution centre in Gurgaon, was robbed. The burglars walked away with mobile handsets, recharge coupons and cash worth Rs 2.5 lakh. “In the 10 years that I have been in this business I have anticipated such an occurrence, but never expected it to actually happen,” says Raheja. So, did he have to shut down his business because of the loss? No, because his insurance cover came to the rescue.
A low-cost shopkeeper policy compensated him. In retrospect, it seems incredible that Raheja paid an annual premium of just Rs 10,000 for a policy that included a loss of up to Rs 25 lakh in case of theft or fire. “You can’t avoid risks altogether, but there are ways to contain them,” he says.
Checklist for insuring business
|Employees should be insured for accidents and natural disasters at the workplace.|
|Insure machinery, stock and cash against theft, damage and fire.|
|Loss of profits because of equipment damage and strike by workers should be covered.|
|The premises and products manufactured by you should be covered for liability.|
|Indemnify yourself against fraud and theft by employees.|
Raheja was fortunate. In most cases, entrepreneurs fail to evaluate both the common and not-socommon risks. “Very few small businesses adequately understand the importance of risk management. Even those that do, fail to realise that with an increase in the scale of operations, the risks are compounded,” says Radhakrishna Chamarty, director, India Insure Risk Management & Insurance Broking Services. This is made worse by the critical, and largely ignored, fact that all businesses have unique risks that are not applicable to other sectors. For example, the head of a BPO, which has a staff of 50, may decide to keep an additional inventory of five computers. But what if 10 computers fail on a given day? Similarly, a rice mill owner may have selected a decent warehouse, but could have failed to check the porosity of the roof. The first torrential rain could destroy his entire stock.
So, what should an entrepreneur do? The first step is to record every stage of your operations. This will enable you to pinpoint risks at each stage. The second step is to think of the sudden and unexpected disruptions that can affect your business. The possibility of such events may be low, but the losses due to them can be huge. Finally, you need to prioritise your risks and decide which are the ones you can bear and which should be transferred to an insurer.
|Ketan Vora, Head, Finance, Samruddha Overseas|
|Has insured against cash and goods lost in transit.|
|“We are exporters and the volume of our trade is above Rs 150 crore a year. Insurance has helped us recover money that was robbed from an employee in a bank and losses due to damages to a consignment in transit.”|
|Laxman Dass Raheja, Airtel Distributor, Gurgaon|
|Lost cash and stock worth Rs 2.5 lakh in a theft.|
|“My stock is in the form of recharge coupons, mobile handsets and cash. My office was burgled a few months ago, but as I had insurance, the necessary procedures are in final stages and I hope to get the claim settled soon.”|
If you feel that your insurance costs will be too high as you have to buy covers for so many exigencies, don’t lose heart. Contrary to popular perception, the premium costs are very low. Raheja paid Rs 10,000 as annual premium to cover Rs 10 lakh of stocks, Rs 5 lakh of cash and Rs 10 lakh for his business premises. The cost of insuring courier consignments of Rs 3 crore works to Rs 17,500 a year, or 0.05% of the value of the goods. In the case of a BPO with 50 employees, if the company has a yearly turnover of about Rs 35 crore, the annual premium for loss of revenue due to all the 50 seats would be Rs 40,000.
Here is a list of covers that are a must-buy:
Protect your assets
For traders, a shopkeeper’s cover is essential in the event of theft or damage to goods and stocks on the premises. The policy has no upper limit on the extent of the cover; in fact, it offers the flexibility to increase it as the business grows. “Insurance is not a one-time purchase. One needs to reassess risks at every milestone and cover them with the right value,” feels Chamarty. If you don’t do so, you may suffer like Delhi-based Ramesh Shankar. Last October, his gift shop in Delhi was robbed. “I had additional stocks, but was insured only for Rs 1.5 lakh, which was less than the loss of Rs 2 lakh,” he rues.
Ensure a back-up
“Even a minute’s downtime—for whatever reason, be it a faulty PC, a machine under repair, or a burnt-out power back-up system—is bad news,” says Pratap Dube of MultiVac, a car rooflining manufacturer. So, in addition to an insurance of Rs 5 crore for the premises, Dube also added a breakdown cover of the same amount for machinery. His additional premium: Rs 40,000 a year.
Another example of the losses that can occur due to such disruptions is an online aggregator ticketing Website that provides several services. Since hundreds of consumers may be logged on at any given minute, the firm’s Internet connection, database server, online payment gateway and content management system have to be operational every second. A breakdown at any stage can lead to a huge loss of revenues.
Safeguard against liabilities
Despite the safety precautions at your workplace, things can, and do, go wrong. If your business entails handling heavy machinery or hazardous chemicals, death of an employee or injury to someone is a distinct possibility, which can impose a severe liability on you. For instance, an employee may accidentally touch a live wire and get electrocuted.
There are risks that aren’t fatal but should be considered nevertheless. Suppose you own a restaurant and a waiter trips and spills hot food on a guest, leading to burns and hospitalisation. Nobody can foresee such events, but it is best to be prepared for them. Reveals Ketan Vora, head, finance, Samruddha Overseas, a Mumbai-based trading company: “One day an employee was carrying cash to deposit in the bank and the money was stolen.”
Usually, liability insurance covers the compensation payable to employees or third parties, or their dependants, in the event of accidental death, bodily injury or property damage. You can always opt for group covers at huge discounts. A Rs 1-lakh cover for an employee earning Rs 1.5 lakh a year will have an annual premium of Rs 200.
Professionals starting their own businesses, such as accountants, doctors and architects, must consider professional liability insurance, which will cover them in case they incur a liability for deficient services or breach of client confidentiality. The premium will vary according to the nature of the cover and profession.
Insure against frauds
A fidelity guarantee policy helps you deal with the monetary implications of corporate frauds. The chances of fraud are high if the owner spends a lot of time outside office to source business and work on deals.
Small businesses and start-ups need to have efficient and effective management and process-driven operations. If they apply due diligence and insure against risks, their businesses can remain free of disruptions.
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