As published in The Daily Times (Malawi) on April 17th, 2024
You may have heard the statement before that there are three things that last forever - faith, hope and love. The greatest of all these is love. No matter how strong one’s faith and hope may be, if one does not have love for a fellow human being, verily, one’s effort is in vain. Although the message has biblical connotation, it is an integral rule book of modern commerce of which insurance is part.
If you were going to conduct a survey on insurance claims, today, you would understand how insurance fraud – indication of lack of love on the part of perpetrators - is costing the insurance industry millions of Kwachas. The insurance fraternity is being milked by some dishonest policyholders and heartless third-party claimants, popularly referred to as ambulance chasers.
The fraternity’s hope is that one day the perpetrators will come to their senses and stop the felony. The good thing about life is that we keep on hoping.
Insurance is governed by the doctrine of faith. Yes, the doctrine of utmost good faith requires that anyone seeking insurance must disclose fully all material facts about the risk that they know or should know. A material fact has been defined in a number of legal cases and broadly is any fact which may influence judgment of a prudent insurer, in deciding, whether to accept a risk and if so, at what rate of premium and terms.
While the law has softened in favor of policyholders, in many court cases, it is still possible for an insurer to repudiate claims, if there has been a breach of utmost good faith - that is, material facts have been withheld or mispresented by the insured.
All these things happen because business life is full of risks of various types and degrees, as a consequence of uncertainties surrounding the future. Different scholars and practitioners have defined risks, differently. Ask any business person and they will probably tell you that they understand risk as a condition, where there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for. For a man in the street, risk is a possibility that something unpleasant or dangerous might happen – such as - risk of a ship being hijacked by pirates; risk of dying in a road traffic accident et cetera.
Risk is an inherent part of any business - small or big. It does not matter, whether a business is in town or village, risk is an inevitable part of business. As a matter of fact, risk is what differentiates business from domestic chores. Risks lead to uncertainty. This is because every business is directed towards the future, which, itself, is uncertain and unpredictable.
Most businesses aim at profits or increasing owner’s value. However, many times business are forced to face losses because they have practically no control over many factors affecting profit. Business owners do not have control over demand for their product, change in consumers’ fashion or taste, government policies, price of substitute products. The list is long.
Evaluation of business risk is very difficult. It is extremely difficult to measure or calculate business risks accurately. This is because risks arise due to many factors related to the environment in which the business operates. The impact of these factors varies from business to business. Terms of sale, competence of management, level of competition, economic, social and natural elements are some of the salient factors that can put a business at risk.
It is important for every business owner to understand categories of business risks. Insurance as a risk management tool does not cover business risks at all. Insurance provides protection against losses that occur as a result of taking business risks, and not business risks per se.
In a layman’s language, insurance provides cover for risks that have a chance of loss and without any possibility of gain to the business owner. For example, when a fire breaks out, it can only cause losses and no gain. Insurance does not provide protection for situations, which are deliberately assumed by business owners with the expectation and in the hope of making profits. All business risks are speculative, in nature, as they have an element of gain and therefore, are not covered by insurance.
Views from the top are that risks cannot be completely eliminated. Sensible handling of risks can minimize negative consequences of various risks. As business owners, you need to go back to the basics. Remember - business risks are not insurable. If you are not able to differentiate between business and pure risks, talk to us. We are here to serve.
Comments
Post a Comment