Insurance is difficult. It’s not like buying a chair, a shirt, or groceries. When you buy insurance, you buy a promise. It’s a promise that if something catastrophic happens to your business, the insurer will help you rebuild. Sometimes, however, it’s tempting to question the value of insurance because it’s an intangible product.
Let’s take a step back and look at why insurance is important from a global perspective.
1.) Insurance keeps business moving
In the days after 9/11, there were many concerns about insurance coverage. Military actions are not covered by insurance. Is terrorism an act of war? The big question was how the 9/11 attacks would be classified. Fortunately, the insurance industry decided that the attacks were not an act of war.
After September 11, 2001, however, some insurers began to rule out terrorism. But the federal government stepped in and demanded coverage in the name of preserving commerce. In this case, insurance likely prevented many businesses from avoiding activities targeted by terrorists, such as refineries and chemical carriers.
2.) Lenders require insurance
This reason is related to the first. Lenders require you to have insurance. Consider this: mortgage lenders want proof of insurance before you buy or build a new building. In short, in order to get the money your business needs to keep running, you’ll likely reap the benefits of insurance. Without insurance, your profitable business model can’t get the funding it needs to get off the ground, or your established business model can’t get the funding to grow and become more competitive.
3.) Insurance is mandatory in some countries
Insurance is important because sometimes it is the law! Car insurance is a good example. Car insurance is mandatory in the state of Wisconsin (where HNI is located). Car insurance helps reduce the risks associated with life on the road (and there are many!). Workers’ compensation is a mandatory form of insurance that is required in most states.
4.) Insurance provides peace of mind
Insurance, which is an intangible tool, provides another intangible tool: peace of mind. Business owners can carry on certain business activities because they can transfer risk – through insurance. This reason is a counterpoint to reason #2: creditors require insurance. Insurance is the required (by lenders) safety net that allows entrepreneurs to explore options.
5.) Insurance provides stability for the family and the business
Life insurance supports the life of the family in the event of the loss of a member. The same is true for businesses. If a key member or piece of equipment goes down, the business can continue to operate with insurance. This reason why insurance is important fits perfectly with peace of mind (#4). It all goes back to the idea that when insurance is triggered, it allows the insured to restore its integrity.
6.) Insurance protects the little guy
When you look at your industry, you see the “big guys” and the “little guys.” If a risk goes wrong, the big companies will be able to survive. They can take hits. But the small ones can’t. Therefore, they are reluctant to take risks, and in some cases sell out to the big guys. If enough small companies leave the industry (and a big one gobbles them up), you end up with a monopoly. In insurance, on the other hand, small companies have support if they want to take a risk, which means they stay in place longer. In fact, insurance helps prevent monopolies from forming.
7.) Insurance is the right solution
The explosion at West Fertilizer Co. in Texas this spring is a sobering example of insurance in action. The explosion caused $100 million worth of damage to the community, including schools and hospitals.
Now the city is suing West Fertilizer and will likely get all of the company’s remaining property and assets that were not damaged by the disaster. That’s because