QUESTION: MY business has grown rapidly over the past 24 months. Turnover will grow this year by 40 per cent to nearly $12 million. The outlook for the next two years is also positive.
The business has outgrown its present location. It will be removed to a new site by the end of September. I am also thinking about buying insurance even though I know very little about this subject. What types of coverage are necessary?
- E.D.S., Spanish Town St. Catherine.
Answer: I am glad to learn about the rosy prospects for your business, even though you omitted to give details about what it actually does. Is there a link between this and the recent statement on the local economy by the IMF staff?
It also pleases me that insurance is now a front-burner issue in your firm. As the Grenadian PM now recognises and Portmore Mall and King's Plaza fires revealed, the failure to devise disaster recovery plans - for countries as well as firms - almost always inhibits growth.
SOME QUESTIONS TO ANSWER
Big corporate buyers in the United States and Europe approach insurance coverage in a non-traditional way.
The norm is to assess their needs. Coverage is then bought on the basis of those needs instead of what insurers usually sell.
It makes no sense to reinvent the wheel. You can use the U.S./European model to help you decide what types of coverage your business needs.
Firms like yours rely on many things to drive revenue, including physical assets, delivery/logistics, personnel and customer support, information technology and inventory.
Which item of these seven items contributes the most to the earnings of your business? To what types of risks are these items exposed?
Will insurance provide protection against all of the hazards? Which event would cause major disruption or have the greatest financial impact on your business if it occurred?
These are some of the questions that you need to answer before deciding what coverage to buy.
ASSESSING RISKS
Property-related disasters pose the greatest risks to most businesses in Jamaica. These events include losses to physical assets as well as future loss of revenue. Our location exposes businesses and households to hurricanes and earthquakes.
Add to these the threat of damage by fire. Many business operators seriously underrate it even though it is an open secret that the national fire service has been in shambles for many years.
These are some of the prime areas where your business should be spending its insurance dollars.
Spend some time analysing your business and trying to answer the questions I have posed.
Once you have completed the exercise, the odds are that you will be in a much better position to go to the next phase - selecting an adviser to guide you through the process of seeing what the insurance market has to offer.
Many persons neglect the first step. When they end up with the wrong goods, they blame everybody except themselves.
This is not unlike entering into marriage without a clear idea of one's own needs, the needs of the partner and the important things that make the institution survive.
In my column next week, I will offer some suggestions about what to look for in selecting an adviser.
END NOTE
I see that the NHT's managing director, Earl Samuels, has replied to article I wrote on May 25 about the problem in Cedar Grove, St. Catherine.
In his zeal to highlight the erroneous advice he alleges that I gave, Mr. Samuels appears to have ignored the big picture.
The lifespan and value of the asset which secures the NHT mortgage have, in all probability, declined because of the persistent problems with the cracks and leaks. This is not in the borrower's or the trust's interest.
To leave the householder alone with the problem makes a mockery of the NHT's mission to "... improving the quality of life ... by facilitating home ownership ... particularly among low-income persons."
While the strategy for dealing with the problem may be legally correct, in my books it is morally questionable.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to the financial editor or contact Mr. Stephens directly at aegis@cwjamaica.com
