I have two friends who were diagnosed with “critical illnesses” over the last few years. Both are in recovery/being treated now but are in entirely different positions. One had critical illness cover, so he has now had his sizeable mortgage paid off along with receiving a lump sum. He has not and probably will never return to work. The other did not have any cover in place and still loses sleep over that decision to this day. He had to return to work earlier than he should have to support his family; life is now quite a struggle.
Now, this is by no means meant to be a scare tactic; I’m not trying to sell you a critical illness cover. The point I am trying to make is that nobody is exempt from unforeseen disasters, so it is essential that you thoroughly consider how your business would manage if things go wrong. It is helpful to conduct a risk assessment to make an informed decision about the type of insurance you should buy.
The risk matrix
You should consider the likelihood of an event occurring vs the impact the event would have on your business.
The Risk Matrix below can be a helpful tool. It helps you plot the probability of certain risks occurring, against the impact this would have on your business. In other words, how likely is it that this identified risk will actually happen, and how severely will it affect your business if it does? We, as an insurance broker, will often use a similar method in discussions with our clients, when they are unsure what cover they need:
The process of using this risk matrix is very simple. First, identify all the possible risks your business could face. Once you’ve got a complete list of the risks, the next step is to note them on the matrix according to their likelihood and impact.
Once you have worked out the weight of the risks, you can plan ways to mitigate them. This may include avoiding the risk, sharing it, or accepting it while reducing the impact. It will ultimately help you identify the most critical areas where you may face unacceptable risks. These should be your priority when you should consider purchasing insurance. It is worth noting that an insurer uses a similar method to calculate the premium they charge for risk, so if you are insuring something that sits in the ‘high’ section, don’t expect it to come cheap.