Today’s digital economy and the rise in cyber attacks have made risks more acute for businesses. To stay competitive, businesses need a risk assessment solution that can help them assess their risks and stay compliant with risk regulations. In this blog, we will discuss how you can get the most out of your Risk Assessment using Marketplace Insurance Strategies.
What is Marketplace Insurance?
Marketplace insurance is a form of risk transfer that happens when you buy and/or sell coverage to protect your assets against a specific risk of loss. In marketplace insurance, you and/or your business buys insurance from an insurance company or broker and agrees to transfer the risk of a financial loss to the broker. You or your business then uses the insurance proceeds to secure a financial asset. In this way, marketplace insurance is a type of financial leverage. You leverage your assets (i.e. your business) to procure an asset that has a high rate of return but carries a high amount of risk.
How Marketplace Insurance Strategies work?
Marketplace insurance transactions are essentially a risk transfer between two parties who agree to transfer the risk of a financial loss to the broker. Between the broker and the customer, there is always a “buyer’s indemnity” and a “seller’s indemnity”. Buyer’s indemnity pays out if the broker’s risk transfer efforts fail and customer’s assets aren’t sufficient to service the transaction amount. Seller’s indemnity (also known as a premium) is the broker’s risk and it is the broker’s promise to repay the customer if the broker’s risk transfer efforts succeed. Marketplace insurance strategies can be broadly classified into four types: – Business Interruption Protection (BIP): BIP is a form of insurance that covers the loss of cash flows resulting from a temporary interruption of business operations. A typical example of this type of risk is the risk that a supplier may become insolvent before delivering products to your business. – Commercial Property: Commercial property insurance is a form of coverage that protects assets like electronics, computers, furniture and equipment from damage or destruction by fire, lightning, windstorm, flood or other causes. – Natural Peril: Natural peril coverage protects you against risks like earthquakes, hurricanes, tornadoes, blizzards and other perils that are part of living in a particular area. – Cyber Peril: Cyber peril insurance covers risks like computer viruses and cyber-attacks that can cause your business to lose data or experience interruptions in operations.
Understand your marketplace risks before assessment
Before you start buying coverage on your own or working with a broker, you need to understand how your assets are currently exposed to risk and what assets you need to protect against those risks. Below, we outline a few key steps you can take to help you better understand your marketplace risks. – Define your assets and exposures – If you are a small business, you may not have assets that are worth protecting with marketplace insurance. With an increasing threat profile, however, commercial property and natural peril coverage may be worth protecting. – Define your vulnerabilities – Vulnerabilities are inherent weaknesses in your business model, financing structure or other factors that could lead to a financial loss. Identify your vulnerabilities and manage them to reduce the financial risk they pose to your organization. – Assess your residual cash flow – How much cash do you expect to be left in the bank at the end of the month? This amount is called your residual cash flow. You may want to consider protecting your business with a certain amount of loss coverage for certain marketplace risks. – Assess the scope and frequency of your risk assessments – How often do you assess your marketplace risk? How wide is your scope when doing so? These questions can help you get a better understanding of your marketplace risks and select appropriate coverage types. – Define your risk appetite – Your risk appetite is the level of risk you want to assume. For example, are you comfortable with a 1% annual risk of insolvency or are you willing to assume a higher level of risk?
Select appropriate coverage types for your risks
Once you understand your financial exposures and vulnerabilities, you can better select the appropriate coverage types for your marketplace risks. Below are a few of the most popular coverage types and the types of risks they cover. – Business Interruption Protection (BIP): BIP is a form of insurance that protects you against risks like interruption in cash flows resulting from a temporary interruption of business operations. – Commercial Property: Commercial property coverage protects assets like electronics, computers, furniture, and equipment against damage or destruction by fire, lightning, windstorm, flood or other causes. – Natural Peril: Natural peril coverage protects you against risks like earthquakes, hurricanes, torn hazards and tornadoes that are part of living in a particular area. – Cyber Peril: Cyber peril insurance covers risks like computer viruses and cyber-attacks that can cause your business to experience interruptions or data loss. – Bail Bond: Bail bonding is a type of insurance that helps to recover unpaid fines or bail bonds for people who are unable to pay.
Business disruptions lead to lost revenue and lost business opportunities, which can be costly for an organization. Therefore, it is crucial to have insurance to protect against such risks. Marketplace insurance can cover a wide range of risk exposures and is a cost-effective way to gain coverage. It can also be a good way to diversify your risk exposure and spread the potential loss in a given scenario. If you are looking for a risk assessment solution that offers more than just a simple score, Marketplace Insurance Strategies are worth considering.