SCHOOLS DO NOT TEACH PEOPLE ABOUT BUSINESS INSURANCE
So Why and How do Businesses buy Insurance?
Businesses around the world buy Insurance for 1 or more of the following reasons:
(1) it’s a requirement by their regulators or corporate by-laws
(2) it’s a requirement by their clients, suppliers, contractors, partners, and/or other party;
(3) it’s a voluntary act to manage their own Risk.
But do Businesses know exactly what they are buying?
Executives and/or Board Members of businesses, whatever the business’ (a) size, (b) industry, and (c) location, are in charge (and if they are not, then they should be in charge) of buying Insurance.
However such Executives and Board Members were never taught the step-by-step mechanics of Insurance. Insurance is a whole world made up of different elements, including Actuarial science, Insurance industry specific dynamics, Legal research, all of which affect the payout of an insurance policy.
INSURANCE IS A BLACK BOX.
Executives and Board Members rely on Insurance Brokers and/or Insurance Companies for their Insurance decisions. However, brokers and insurers do not have the business models to offer Insurance benefiting Businesses that are buying it. This is simply because (a) insurers have to offer insurance policies with zero to low probabilities of payout so that they maximize profit; and (b) brokers are incentivized by insurers to sell such insurance policies and their business cost structure does not allow them to conduct thorough Risk and insurance policy analysis.
OFF-THE-SHELF BUSINESS INSURANCE STATISTICALLY, AND OVERWHELMINGLY, BENEFITS INSURANCE COMPANIES AS OPPOSED TO POLICYHOLDERS.
An enormous number of businesses are under the illusion that they are well protected. Such illusion can become much bigger with larger businesses that have their own risk management or insurance management departments or with businesses that have previously received 'small' insurance payouts (Yes, we said it!).
On a voluntary basis, and subject to a detailed cost/benefit analysis, a business should buy Structured Insurance or not buy Insurance at all.