There is such a myriad of insurance products available on the market,ranging from property and casualty insurance, to health insurance,from product liability insurance and key man insurance to disasterinsurance, from business interruption insurance to directors’insurance and life insurance. And the list is far from exhaustive.How should a business owner or manager choose what kind of insuranceto buy? How might these insurance products help manage the risks inyour business?

A business owner or manager should at any time have a full assessmentof all the risks affecting his or her business. These need to beprioritized, as few businesses can afford to insure against allrisks. You may be aware of the analogy that a hole below the waterline will sink a boat; a hole above the water line will not. Youshould always try to insure against potential holes below thewaterline, if they are insurable. Those holes that are not below theline can still cause a huge amount of damage, potentially destroy theearnings of a mid-sized company for a number of years. So “abovethe waterline” risks should not be ignored either.

The hesitation that business owners and managers face in purchasinginsurance stem from several sources:

• Complexity. Few business owners who are working incredible hours can take the time to fully understand the complexities of insurance and read the fine print. This is where a good broker can be of assistance. Given that the broker typically makes a commission by selling an insurance product, it may be a challenge to find a broker for whom your relationship is more important than making the sale. Trust is of the essence.

• Difficulty with collections. Many insurance companies in Central Europe have developed a reputation for exploiting “loopholes” in insurance contracts. (This might have something to do with the fact that there may also be more insurance fraud in certain Central European countries than in Western Europe). Once again, a good broker can help you pick the insurance companies that have a better payment record, and when it comes to collecting, the broker may also exercise some leverage to obtain payment. (My personal opinion is that there is a fortune to be made by an insurance company in Central Europe who develops a stellar reputation for payment).

Always shop competitively for insurance; and always look at the fine print. Once again, the former might be a role for a good broker; the latter should be reviewed by both broker and lawyer. It is often a challenge to negotiate “boilerplate” clauses in insurance contracts, and costly, in terms of legal fees. On smaller contracts insurance companies sometimes refuse outright to negotiate terms.

One of the dangers in a financialcrisis is that companies and individuals generally purchase less ofthe vast majority of insurance products. Cash and liquidity is sotight, companies will choose to meet payroll or pay that invoice thathas been outstanding for more than 100 days, rather than purchase aninsurance product – and just hope that risks do not materialize.The problem is that sooner or later, risks do materialize – andbeware if it is of the “below the waterline” variety.

When you thinkabout it, many Central European individuals and companies areunderinsured at every level: a surprising number of homes no longerhave insurance; businesses are buying less property and casualtyinsurance in most CEE countries, as well as product liabilityinsurance and other types of insurance. When it happens on such amassive scale this also creates systemic risks, for example forbanks. It is also contributes to a number of households andbusinesses getting wiped out, tragedies for many business owners andfamilies, when “below the waterline” risks do materialize.Particularly if your company’s cash flow is beginning to pick upagain after the low point of the financial crisis, it is time to takeanother close look at risk management and insurance.