MANAGING CORPORATE RISK
FOR BUSINESS CONTINUITY

Insurance is one form of ‘financing’ your business risk. Find out how you can protect your business by engaging proper coverage.

Protecting the Human Capital
Human Capital refers to the employees, employees’ work-related competencies, the management’s leadership, its culture and values, as well as the goodwill created from the strong network of suppliers and loyal customers. It is costly and time consuming to replace Human Capital and bound to result in some level of business interruptions during the transition especially where the replacement is unforeseeable and unplanned for.

For instance, the sudden departure of a company’s key talent (e.g. the top salesman) may impact the company’s revenue or goodwill that has been established by this particular person in the short-term. There will also be costs involved in terms of getting a new replacement as his departure would indicate the loss of knowledge, skills, networks and expertise for the company. Apart from rolling out an effective succession plan, the company can also consider taking up a key-man insurance to protect itself from sudden loss of revenue, business interruption and the hassle of finding a suitable replacement.

Another category of the company’s key driver is its top management. The company should not overlook the potential threats surrounding its management in its daily decision making responsibilities and duties, which also comes with its liabilities and obligations. In addition to good corporate governance, it is a good practice to obtain a Directors’ & Officers’ liability insurance coverage to minimise the financial impact as a result of an unforeseen legal liabilities and litigation during the course of office, which can be hefty especially for long-drawn legal suit.

With the new Work Injury Compensation Act successfully in place with effect from 1 April 2008 by the Ministry of Manpower (MOM), all employees – regardless of their earning level – are eligible to claim for injuries or death in work-related accidents. Employers can obtain a Work Injury Compensation insurance for all employees to protect the company against potential claims. This type of insurance can form part of the employees’ benefit programme which include benefits such as group outpatient treatment as well as hospitalisation, surgical, dental and disability incentives.

Buffer Revenue
Loss As a useful guide, it is better for a company to transfer an unforeseeable business risk to an insurance company if the risk could potentially result in a substantial financial loss for the business. For example, to protect the company from revenue loss due to fire hazards, thefts, fidelity of employees, goods in transit, third party liabilities and damages to premises or equipment, the business owner can purchase a business risk insurance coverage to buffer the financial loss incurred. Consider the incidents involving PrimaDeli bakery outlets and the Cortina Watch boutique at Raffles City. The temporary closure of the bakery’s outlets due to a salmonella scare and the latter’s S$7.9 million loss of possible stock due to theft by internal staff affected sales revenue and customer confidence considerably.

A company can look into protecting its innovation and creations against any copycats from competitors, and also to secure the sales from this first mover advantage when there is a launch of a new unique product, by applying for a Trademark or Patent Rights. On the other hand, the company also requires a protection against ignorance or negligence infringement or violations of copyrights unknowingly by its employees. This may result in a hefty financial loss to the company if the legal battle lasts for years and most small and medium-sized enterprises (SMEs) may not have the financial arms to engage in a long legal proceeding over an intellectual property lawsuit.

One way to mitigate the financial loss and minimise such business interruptions is to purchase relevant insurance coverage to cover the company’s monetary loss in a settlement out of court or to engage in this legal battle.

Managing the business uncertainties is a form of planning for business continuity and sustainability. Effective risk management is a critical component of any winning management strategy. Other than the options to avoid and reduce the risk and exposure to loss, companies can make use of insurance tools to transfer the potential heavy outlay of cashflow as a result of the various spectrum of risk faced in an evolving economy and marketplace, such as those discussed in this article.