A QUESTION OF BALANCE

In the modern climate of economic constraint, insurance is increasingly recognized as being of importance.

But there are two opposite philosophies. One follows the theory that every conceivable risk should be insured and for liberal amounts, so as to permit little or no chance of a loss being uninsured. Where income permits such a broad program, it is, of course, a source of comfort, but there are questions to be considered:

1. Does the purchase of insurance in liberal amounts tend to reduce loss prevention measures? If it does and losses arise, premiums will increase. Add premium increases resulting from adverse loss experience to the higher premiums for greater amounts of insurance because of inflation and it could be found that the cost might prove to be prohibitive. The return in value is certainly questionable.
2. Does the absence of proper loss prevention measures have repercussions with insurers? In the same way that industry and technology have developed in recent years, insurance has also had to progress in parallel to keep abreast with rapid changes occurring. Consequently, when a risk presents an unusually high exposure, insurers expect, and in many cases demand, that effective loss prevention measures are taken before the risk is accepted.

The other philosophy places emphasis on stringent measures to prevent, or at least minimise losses. Insurance is merely effected to cover those losses which will occur despite a rigid loss prevention program. Such insurance may involve a certain amount of self-insurance through higher deductibles. But consideration must be given to insure against a catastrophic loss, which could affect the financial stability of the company.

It is our philosophy at FFK to attempt to maintain a practical balance as to amounts of insurance, risks covered and measures of loss prevention. We maintain a Technical Services Department, which can provide the complete range of risk management services. It is our duty to minimise our client’s overheads without jeopardising their financial stability.