Prevention and Insurance: How to Manage Your Biggest Corporate Risks

Every successful business will inevitably have to take a risk. The decisions that lead to growth often come with an element of it. But while risks can’t be avoided, they can be managed well. In fact, some of the most common corporate risks are perfectly insurable in the right conditions.

That’s why business owners and managers should emphasise insurance in their risk management strategies. Not only can insurance cover a company against huge financial losses – it ensures that operations can continue despite risk. That’s the level of structural resilience that facilitates success.

So what are the most common corporate risks and which insurance solutions can protect businesses against them?

Risk: Commercial Property and Equipment Damage

Even as the global economy shifts to accommodate remote working, property remains one of the most valuable assets a business can own. Because of its baseline value as well as its importance in operations, property needs to be adequately insured to prevent it from turning into a business’ biggest liability.

Solution: Commercial Property Insurance

Commercial property insurance covers a range of risks, however the onus is on business owners to identify the risks associated with their property and adequately cover blind spots. Professional brokers and consultants would be able to support with their risk engineering arm, by surveying the property, identifying risk exposures and recommending risk mitigating strategies.

Commercial property insurance covers against theft, fire, flooding and other natural disasters. In territories prone to earthquakes, a separate policy might be needed. Thankfully, the UAE isn’t one of those territories, so that risk is covered under one policy.

Given how central commercial assets are to generating revenue, insuring them is the first step to building a resilient operational structure. This is especially true for equipment that deals with high-volume usage and property vulnerable to external factors.

For example, the Middle East is famous for its hospitality markets. This industry relies on commercial property to keep them running, including: hotels, transport, telecommunication structures and other physical assets across multiple supply chains.

Collectively, that’s one of the most complex and powerful commercial networks in the world – and insurance is pivotal for minimising disruption and protecting its many revenue streams. At Al Futtaim Willis, we have a predesigned market-leading policy wording geared towards the hospitality industry, where main risks exposures and gaps are bridged with insurers to ensure hotels are adequately and suitably covered.

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Risk: Professional Liability

Article 383 of Federal Law No. 5 of 1985 on the Civil Transactions Law of the United Arab Emirates is important to understanding professional negligence claims in the UAE.

In summary, the article states that if one party owes another a duty of care, then they must exercise that care to a reasonable standard. A professional negligence claim can be brought against any breach of care thought to be a result of a negligent act, error or omission.

Of course, the claimant must then prove that there was a breach in the duty of care, most often in court. While reputational damage is its own risk, the cost of a legal defence carries an immense financial impact – especially if the claimant is awarded a settlement.

Solution: Professional Indemnity Insurance

Professional liability or professional indemnity insurance provides protection in respect of claims brought against a firm for professional negligence. That protection includes legal defence costs, one of the two biggest financial risks that come with a claim.

The other financial risk is the settlement itself, should it be awarded. Provided the legal costs don’t exceed the indemnity limit (and other terms and conditions) then the policy will cover the settlement too.

When it comes to the United Arab Emirates, certain industries like architecture and engineering require professionals to take out indemnity insurance by law.

While a negligence-based policy is built around the duty of care, a civil liability policy covers a wider range of professional liability risks. Civil liability policies often cover claims of defamation and conflict of interest, as well as breaches in contracts, statute laws and trust.

Risk: Work-related Employee Injury

No business can survive without its workforce, and adequately taking care of employees benefits everyone. When a worker becomes sick, they may need time off. Most corporate policies require a medical note or this absence, unless an employee takes the time out of their paid leave days.

Both options represent a financial loss for employers and a lack of access to adequate care can make recovery difficult. That’s the best-case scenario. In the worst-case scenario, a worker is injured while performing their contracted duties, and this risk must always be avoided.

Solution: Health and Workmen’s Compensation Insurance

If all other reasonable measures to prevent accidents are taken, then the best course of action here is to have a corporate health plan in place for contracted employees. As far as risk-lowering policies go, corporate healthcare insurance represent a mutually beneficial form of protection.

Worker compensation insurance covers employees who suffer work-related injuries. That cover can include wage replacement, disability benefits and medical treatment – essentially protecting employees against medical costs and loss of income.

Given its ability to protect workers and lower operational risk, worker compensation insurance is mandatory in most United Arab Emirates free zones.

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Risk: Cyber Threats

2020 saw a marked increase in consumers migrating to online retailers. Similarly, more companies made use of remote working, which meant even more data moving through cyberspace. Naturally, this was followed by an increase in cybercrime.

2020 saw a marked increase in consumers migrating to online retailers.

In the United Arab Emirates, federal laws like the Consumer Protection Law of 2020 were put in place to protect consumers’ rights. Likewise, businesses are charged with protecting the data that passes through their care.

Solution: Cyber Insurance

While cyber security insurance will not directly protect a business against cyber-attacks, it’s an essential part of any risk management strategy. That’s if a breach occurs. Business leaders and managers can also turn to cyber security firms to either test their networks for threats regularly or keep them on retainer for surveillance.

When it comes to insurance itself, first party cover can include direct organisational risks like data breaches, personal data theft and network failure.

Third party liability, on the other hand, deals with legal claims taken by customers. This also includes the cost of a forensic investigation and payment for losses incurred.

Market research firm Progressive Markets projected the cyber security insurance market increasing to a total valuation of $29 billion. The heavier reliance on remote work in 2020 and 2021 is only set to increase the value and necessity of this type of risk protection.

Market research firm Progressive Markets projected the cyber security insurance market increasing to a total valuation of $29 billion.

Conclusion

Corporate risks don’t have to represent insurmountable obstacles, nor should they be seen as warning signs by default. Every business will have its risk factors. A corporate structure capable of assessing and dealing with them is a sign of healthy management.

Sometimes, great risk can equal good reward, but how it’s managed is key to how many risks a business can reasonably take.?