Risk management 101: basic consideration for selecting property and casualty insurance.

• Author: Free, Daniel C.

Most small- and medium-sized businesses do not have an individual whose sole responsibility is the company's insurance program. Even some large companies have eliminated the risk-management position in recent years, so most organizations look to outsiders for advice about insurance and risk management. If you find yourself in this situation, you can't just delegate the entire responsibility to an outsider; you need to be actively involved throughout the process. Here are a few things to remember.

EXPLORE ALL OPTIONS

Insurance advice can come from a number of sources. For most organizations, the agency that sells insurance to the company also is its principal source of advice. Remember, however, that the commercial insurance industry is huge and attorneys, consultants, publications, trade associations and accounting firms are part of the pool of available resources.

A good general-lines agency has contracts with several insurance companies that may be able to write coverage for your business. But don't overlook obtaining proposals from direct writers, which employ their own sales forces instead of using agencies.

Finally, you may be part of a trade association that has developed its own specialized insurance program. Often these programs offer coverage specifically tailored to your industry, with competitive pricing because of the total volume of premiums association members generate.

SERVICE IS A CRITICAL COMPONENT

Bigger is not always better. Multinational brokerage firms may offer more services than a local or regional broker, but you may not be large enough to be important to them. If you operate entirely in Indiana, you probably don't care whether the brokerage has an office in Zimbabwe.

For many years, Indiana has had the benefit of good quality local and regional agencies as well as large firms with multinational presence. The agencies you contact will let you know pretty quickly if your size range is an appropriate fit for them.

INSURE THE CATASTROPHIC, RETAIN THE AFFORDABLE

Limits, especially for liability insurance, need to be high enough to adequately protect against a catastrophic loss. Each of us has our own tolerance for uncertainty. You need to reduce the chance of a loss exceeding your insurance limits to a level of probability that allows you to sleep well.

Even small shops should have umbrella limits of at least $5 million, and most reasonable-sized businesses should have $10 million to $20 million. As the limits go up, the...