The entire purpose of commercial insurance is to hedge some of the risks a business faces. However, there are many types of risks and insurance. It's important to think about your risk profile before working with a commercial insurance agency to set up a policy. Here is a look at how you should think about pairing your risk profile with the right insurance.
Itemize Your Known Risks
You'll want to develop an itemized list of the risks you know that your business faces. For example, a computer repair shop might need liability insurance to cover losses arising from a mistake made while fixing a machine. Similarly, a store located in a tornado-prone region of the country might want to carry storm insurance. A printing might need coverage for errors and omissions. If there's a scenario where your business may take a notable loss, include it in your initial list even if you're fairly sure you won't need coverage.
Some events rarely happen, but they can wreck a business when they do. This sort of risk, tail risk, can be challenging to assess. For example, many operations didn't consider pandemic insurance prior to 2020. Worse, many thought their business stoppage policies had them covered.
In assessing tail risks, you must ask, "What is the worst that could happen if X or Y hits? Does the business even survive?" If the answer is that the business would be wiped out by a particular event, then you want coverage.
Fortunately, insurance tends to be cheaper with less common events. Earthquake insurance in North Carolina, for example, is cheaper than in California because the state gets fewer quakes. Remember, a commercial insurance agency is usually able to draw up a policy for anything you're comfortable paying for.
Quantify the Costs of Recovering From a Loss
It's not uncommon for a business to self-insure against certain losses. Your local bakery isn't planning to file an insurance claim if a shoplifter takes a loaf of bread, for example.
Fortunately, each insurance policy provides a good metric for assessing whether a potential loss is worth insuring. This starts with the deductible. Whatever the deductible for a proposed policy is, that's how much you should be comfortable paying out of pocket to address the situation. If your business can't afford to shell out $10,000 right now, then you'll want to have a deductible that's lower than whatever amount you can afford.