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  The only constant is change.’ All businesses function in an environment of uncertainty. Some events, though unexpected, may have little impact on your business, while some others may leave the business floundering, with doubts about its survival.So as to minimize the adverse effect of these unexpected events and to help the business on its recovery path from these unexpected events, it makes sound business sense to invest in business insurance. Budgeting for an event or expense helps you gain better financial control. Budgeting helps one plan and allocate resources in a planned manner and budgeting for insurance is also the same.All budgeting is to meet objectives. These objectives can be to reduce cost, increase sales, etc. Budgeting for insurance is done for a period defined, and will be based on past performance, history of events and anticipation of future contingencies. Budgets can also be prepared ignoring all past performance and events, zero-based budgeting.Insurance is about protection of the investment in your business. It minimizes risks due to financial disasters, personal disasters, natural disasters or any other economic disaster or otherwise. Business insurance is also a statutory requirement mandated by certain state governments especially when you are an employer.The basic steps in budgeting for insurance would involve an analysis of:

• Loss history – looking at past history, within the organization, industry and the outside world, in general.
• Identification of risk – stating company goals and all possible obstacles which can stand in the way of achieving such goals.
• Deciding on the specified time period for which insurance coverage is required.

Assisting businesses in listing various kinds of risks, the National Foundation of Independent Businesses, has provided a Business Insurance Coverage (BIC) checklist, which can help you in making a risk assessment of your business.Risk Evaluation:This involves analyzing all the identified risks tp determine: (a) probability of occurence, and (b) the poetential effect or impact on the achievement of business goals, should such a risk occur.Risk Treatment:This involves the decisions taken by the business to manage risks or impact thereof. This can be through:

• avoidance of the risk – staying away from the risk trigger
• accepatnce of the risk with close monitoring
• taking action to reduce the likelihood of the risk occuring
• means to reduce the impact should the risk event take place
• transfer the liability of the risk through insurance

Once you’ve identified the areas of risk and decided on covering these with insurance, work on building the costs for such insurance into the business budget. The different kinds of insurance, which you may need to consider, in your budgeting exercise are:

• Necessary/mandatory insurance – where state or federal governing bodies mandate that businesses insure against risks. Also included in this category are risk events which are identified as “high impact” and “high probability”. Some examples of such risk events are: (i) workers’ compensation, if there are employees in the business, (ii) professional liablility insurance, where professional bodies require it (lawyers, doctors, etc), and (iii) motor vehicle insurance, where the business uses or involves motor vehicles.

• Insurance mandated by contract with vendors – where vendors seek risk mitigation through insurance, on account of the particular nature of the business arrangement or unforseen discontinuance of the business arrangement.
• Insurance for basic assets of the business – which are its people and involves covering any or all of their health, life or disability.
• Customer/customer’s property insurance – insurance which involves customer or customer’s property protection with liability insurance.
• Business continuity insurance:involves risk events which affect business continuity, such as impact on key management or staff, key machinery or critical business areas, etc.

Now, armed with the areas of insurance you’ve identified as critical, you can proceed with the neccessary budgeting for insurance. Always assess the adequacy of your insurance coverage regularly as business grow and environments and the risks they represent change. Budgeting for insurance will always provide protection for your business and will never give you cause for regret.

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