Most of us underestimate both the likelihood and the possible severity of the risks with which we are faced in life, and especially in business, but failing to have a reasonable understanding of our risks usually has two results:

· We do not take out the right insurances, or if we do we tend to set the limits of cover too low

· We do not take the necessary steps to control the risk because we consider the time and money required would be unjustified.

It is probably not difficult to see what further consequences such wrong thinking might have.

What are the reasons for this?

1. We tend to assume that large losses only happen to big businesses or in connection with large projects. Sadly, this is not always true. I remember a claim involving a plumber who had gone into a school to install a disabled toilet. He went into the roof-space to get to a water supply and tried to cut into a pipe using a hot torch. The flames from this set the roof insulation alight. The fire soon spread and burned down half the school. I also remember a falconry display at a county fair in Scotland when a vulture was caught in high winds and blown off course, into the airspace at Glasgow Airport, causing several flights to be re-routed. It is the context which matters, not the size or value of the job itself.

2. We tend not to think about certain intangible risks. We usually insure our laptops and mobile ‘phones, but what about the data on them? Apart from the Data Protection Act issue, how important is the data to us? We know about Health and Safety, but what about our potential liabilities arising from stress, harassment, discrimination, or unfair dismissal? We protect our property but do we protect our reputations? One unfortunate tweet can go a long way. A genuine but minor complaint can do a lot of damage if it is handled badly, or not at all.

3. We tend think of remote risks as being considerably more remote than they really are. If something is a million-to-one, it means it will affect six people in the UK this year. Will you or I be among them?

4. We often do not think about consequential losses. We always insure our buildings for the cost of rebuilding in the event of fire, but how is the business going to carry on while we are waiting for the rebuilding to take place? Do we have a plan? Does that involve extra cost? Is that insured?

5. We usually expect third party claims to come one at a time. All too often, however, several people claim to have been injured in the same incident, and the limit on most liability policies is “per incident” not “per claim”. So we need to think how many people could possibly be hurt by anything which might go wrong. This is especially important if we are involved in public events or other crowded venues.

6. Finally, we may be reluctant to admit to the seriousness of some risks out of fear of having to spend a lot of money on measures to control them. It is easy to forget that prevention is better than cure. It is also important to look for cost-effectiveness when considering various options for controlling the risks. Sometimes there are simple, low-cost measures we can take. I once found a skip full of paper, wood, and other combustible material placed against a wall where it was under the eaves of a large building. If anyone set fire to the skip’s contents, it was highly like;ly that it could have spread to the building. Moving the skip to the opposite side of the yard was not expensive!

It is always worth remembering that premiums do not go up pro-rata to sums insured. Thus the first million pounds of cover costs more than the second and so on. In addition, being able to demonstrate that you have identified your risks and taken reasonable steps to control them can only help you in negotiating premiums.

In summary, let us not be underinsured, but also, without taking a sledgehammer to crack a nut, let us give serious risks serious attention.

John Harvey Murray is the owner/manager of JHM Claims, providing liability claims-handling and risk management services to individuals, businesses and other organisations in the Warrington area, helping clients save time, money, and stress.