5 Issues to Consider When Relying on Insurance For Security

There are times when I find myself amazed that I can still be amazed. After nearly two decades in law enforcement and security, I still see mopes and miscreants with some new twist on wrongdoing that leaves my head spinning. More amazing are some of the decisions made by otherwise intelligent and rational individuals. And I am talking about many of the leaders of the organizations surrounding us in our communities.

I recently heard one story of a large project in which security had been heavily considered throughout the planning and implementation. It was a surprise to the organization’s security leader to hear a side comment in a meeting about a warehouse full of expensive equipment, located off-site in a nearby city. When the security leader asked about the security of the location, it was mentioned that the building and equipment were covered by insurance.

It does beg the question of whether or not insurance truly equals security. True, security professionals are taught that insurance is one method to reduce or manage risks. However, even with the best insurance policy in the world, there are downsides of relying on insurance to recover any losses, whether due to a theft, vandalism or other disasters.

When deciding on the best approach to the risks, there are several issues to take into account and consider if you are going to rely on insurance as your risk management tool.

1.     Deductible. Clearly, the amount you would have to pay out for the deductible should be evaluated. For a commercial account, the deductible could be thousands of dollars. For some companies, a large portion is self-insured, meaning the loss could be tens of thousands or even a hundred thousand dollars, just in the deductible alone. That same money could be wisely invested in security measures that would limit or even eliminate the losses.

2.     Discounts. Often insurance carriers will provide discounts for having the right security measures in place. The savings help justify the investment.

3.     Time to replace. If critical items are stolen or damaged, it is important to consider the time involved in replacing those items. You may have to determine what was lost or damaged and there could be substantial lead time, especially if goods have to be customized or are shipped from overseas. How well can you manage without the merchandise that was lost and for how long?

4.    Availability of replacements. Time is not the only consideration with replacements. Sometimes, the materials are simply hard or even impossible to find. This will depend largely on the type of goods and industry. There are many industries where certain common goods may be tricky to obtain for one reason or another, or even there could be an all out shortage. Even if insurance covers the loss, you may have a difficult time actually replacing the stolen materials. There is also the time it takes to inventory what is left, place new orders and re-stock those goods, affecting the productivity of employees.

5.     Negative publicity. Depending on the type of organization you work for, there is a certain risk of negative publicity if certain materials are not available or on hand. Imagine a hospital dealing with the negative publicity due to a shortage of medicine like Tamiflu during the flu season, or even a shortage of saline solution (a very real problem). There have been cases in which schools were vandalized and had to close for a day or two while repairs were made. Insurance alone will not build confidence with customers or restore faith in the safety of the organization.

If you are in a situation where insurance seems like the right approach to dealing with the risk of losses, then be sure to truly evaluate and assess the potential downsides rather than just taking the easy path and hoping nothing bad happens.

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Eric Smith, CPP is the leading authority on organizational self-defense. He has extensive experience in law enforcement as well as security management. Eric is available for staff education and security awareness training as well as business coaching to help organizations provide safe workplaces. To learn more email Eric at businesskarate dot com.



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