Business risks in the ever changing environment are numerous and could affect an organization’s operations or its financial position. Thus, risk management includes the necessity to provide sufficient insurance. Credit insurance, product liability insurance, E&O insurance, trade credit insurance are some of the important risk management weapons available to business. It is therefore important for any business venturing into these fields to comprehend how each of these insurance types operates and how they could be of advantages to whichever business that is interested in protecting its interests.
Credit Insurance
It is the insurance of credit with an aim of insulating business people from losses arising from non- profitable customer advances. The form of credit risk insurance that concerns default on accounts receivable is called Trade Credit Insurance. In the event that the business has extended credit to a customer who defaulted, then the business can recover the insured amount; hence, it does not suffer a major loss. By protecting these account receivables, firms are able to control their cash flow hence ability to properly invest in growth prospects.
Trade Credit Insurance
A special kind of credit insurance is trade credit insurance. Finally, this insurance has a coverage for business firms that trade both locally and internationally. It deals with the credit risk in relation to non-payment as a result of the bankruptcy or prolonged payment delay or payment associated with political factors in international markets. In the extent that some firms participate in exportation, trade credit insurance offers cover against risk when dealing with foreign buyers. Such protection helps the businesses venture into new markets by reducing the impact that non-payment will have in affecting the sized of their financial risk.
Product Liability Insurance
This policy is important for companies that deal in production or are involved in the sale of products. This protecting one’s product against actions that would entitle the injured party to attach the property of the manufacturer or seller. This type of insurance is accustoming very much for the manufacturers, distributor and also for the retailer. If a product reaches to the market and there is a defect which leads to harm then it can lead to costly litigation. Product liability insurance guarantees that the business is capable of paying for defense costs and compensations or fines and penalties and improves on its financial strength.
E&O Insurance
E&O insurance also referred to as professional liability insurance is critical for any enterprise that offers services. This insurance protects the professional against the claims by the client for poor workmanship or negligence. For instance, if a consultant gives bad advise which results in a client losing his or her money, the client can seek compensation. E&O insurance involves legal costs and any amount awarded in the compensation of claims. This protection is central for preserving the image and profitability of the businesses operating in the service industry.
Mitigating Business Risks with Insurance
This integration of insurance types enables businesses to come up with the right risk management strategies. In this manner, the insurance of operations can be more closely linked to the particular threats related to the organization’s business.
Enhanced Financial Stability: While obtaining credit insurance and trade credit insurance, businessmen receive the existence that they can cope with their financial losses even if it appears that the customer with whom they cooperated cannot pay for the services or products. This protection is essential to carry out normal business and establish the flourishing of the company in the future.
Legal Protection: CGL insurance for defective products, product liability insurance and E&O insurance must have a legal defense. They pay for any expenditures that accompany legal actions against claims and any costs of settlements or verdicts so that legal problems do not bankrupt the company.
Customer Confidence: Insurance is also another aspect that a firm should have in order to increase customer confidence. It is safer for clients and partners to engage with a business entity that has some form of arrangement for managing risks and claims.
Market Expansion: Trade credit insurance also enables organizations to expand into new markets since they will not be at the risk of losing market share. The insurance hedges the political risks involved in trading internationally, thus enabling firms to operate beyond their borders in the knowledge that they will receive payment for the traded commodities irrespective of the prevailing political climate in the buyer’s country.
Therefore, credit insurance, product liability insurance, E&O insurance as well as trade credit insurance are some of the useful tools in the risk management process. They provide the companies with the financial security and the comfort that are required in today’s business environment. Through these insurance types, organizations are able to mitigate risk regarding their operations, basically, secure their financial future and explore the possibilities of expansion.
