Ways in Which Uninsurable Risks Affect Businesses
Uninsurable risks are events that cannot be insured due to their nature. These risks include natural catastrophes such as earthquakes, hurricanes, and tornadoes. The important thing to remember is that these risks could happen to anyone at any time – so insurers can’t provide cover for these incidents.
Uninsurable risk can also result from a lifestyle choice in which the individual knowingly chooses activities not covered by an insurer due to their inherent danger or unpredictability. One example of this would be a stuntman/woman, as the likelihood of injury will be much higher than the average individual.
To add to their effect, these disasters often cause people’s homes to get destroyed, their savings and assets to disappear, and they may lose loved ones or friends. These unfortunate events often leave people feeling stressed and confused about how to address the situation after such a catastrophe. In this article, Raphael Avraham Sternberg discusses different ways uninsured risks affect business.
1. Loss of Revenue
When a risk is uninsurable, the insurance company will not provide a policy to cover the asset or business against an unexpected loss. Essentially, they don’t think that it’s worth the risk. If there is no protection against an unforeseeable event, then businesses could suffer a substantial financial loss.
2. Can Lead to More Lawsuits
Businesses are constantly in contact with their customers. If an accident happens, customers may feel offended or upset and bring a claim against the business. An uninsurable risk can mean that a business cannot protect itself against an unhappy customer bringing a lawsuit.
The cost of defending a lawsuit can be huge. If the business gets sued for something out of its control, it could find itself paying millions or even billions of dollars in legal fees to defend itself and fight off the claim.
3. Product Liability Claims
When a product gets sold, and damages occur due to an uninsurable event, any financial damage caused as a result is also uninsurable. Even if the product itself was working correctly if an accident occurs that is uninsurable, it means that the company could still be liable for these costs.
4. Regulatory Penalties
When a risk happens, and the government finds that the business has breached laws and regulations, it could suffer hefty fines and penalties. Most businesses are not insured against government fines, which is another risk they cannot protect themselves against.
5. Compensation Claims
When a business gets sued, the amount that they are liable for can be huge. However, if the cause of the damage or loss was uninsurable, then they have no protection against the claim and are forced to pay out money – even if it’s money they don’t have.
6. Closure of Business
If a business suffers from an uninsurable risk, it could mean disaster for the company. Without protection against the risk and no way to defend themselves against an incident, businesses are at huge risk of closure.
Final thought
According to Raphael Avraham Sternberg, uninsurable risks are some of the most common problems that businesses face. These risks lead to financial loss, lawsuits, legal costs, and product liability claims that could go up against a business and potentially destroy its reputation. Businesses can easily prevent Uninsurable risks by ensuring that the right insurance coverage is in place.