Don’t Ignore the Role Insurance Plays in Protecting the Balance Sheet
Hey, you, head bean counter (yes, I guarantee there is someone in your office that still finds that funny), “let’s talk about insurance.
If you’re like me, my CFO response just a few years ago went something like this. “Yep, we have good insurance, so we’re good. My broker told me so. Besides, we don’t need to add more expenses to the company budget, so let’s move on to the next issue on my list today.”
But do you really know why you are paying what you are paying, or even more importantly, what your insurance is protecting you from? Let’s talk a bit about why you need to change your thinking and how starting an insurance brokerage has opened my eyes to these and other insurance-related issues.
When you wake up as the company’s head accountant (whether it’s chief financial officer, treasurer, controller), odds are pretty good that the company’s insurance is not a priority. Most accountants have a plan on what they are going to accomplish on a given day, but more often than not, some sort of curveball is thrown at you that just killed your last two hours.
Perhaps the CEO needs a quick report that “should only take you 10 minutes to put together.” I love those 10-minute reports, except they really take a couple hours. As a result you will just look at the insurance policies tomorrow. But then of course tomorrow happens, and another urgent issue takes priority.
Finally Getting Down to It
When you finally do get around to checking out your policies, you see the copies you have are two years old and you aren’t even sure whom to contact to get the latest ones. Did anything change since then?
How about when you meet with your health insurance broker in late November (for a January 1st renewal date) and they send you a spreadsheet with a lot of numbers on it. The spreadsheet gives you multiple options, often exactly the same options you had the prior year and informs you that your premiums are only going up 5-12%.
Years ago, I would think to myself, great, that fits within what I am budgeting for the following year. That’s one less thing I have to worry about going into next year. What I never did is stop and think, if health insurance costs are becoming more expensive (or so the media reports) then how is it possible that my health insurance premiums increased so little?
So Many Questions
Finally, you sit back for a second and realize that you truly just don’t know. So CFO/Controller/Head Bean Counter, do you know…
- what your policy protects you against?
- what your policy doesn’t protect you against?
- why your premiums are increasing? Or not increasing?
- why you don’t talk to your broker every quarter and only at renewal?
- why your broker has never referred you a client or made a contact for you that could benefit your company?
To get a wider perspective, I contacted a number of my CFO peers, and asked them for their thoughts on the importance of insurance. Here’s some of what I heard:
- Why should I care about insurance?
- How do we know if we’re adequately covered, as in do we have too much or not enough coverage?
- There are too many different coverage policies/line items. I wish I knew which are necessary and which are a luxury?
- How important is cyber security coverage and what are the risks that exist that are not covered by a traditional policy?
- I have run into several situations where a business with a buy-sell agreement, funded by life insurance, is not being updated for the increase in value. For example, a $250k policy for buy-sell when the shareholders stake is worth millions.
- I wish I knew a heck of a lot more about insuring intellectual property.
- I am afraid to ask questions about my insurance because I am nervous about what I might uncover.
These are all great questions. And I can tell you that you’re probably not going to get meaningful answers from your average insurance broker. You can try and find the answers yourself, but insurance policies can run a couple hundred pages, good luck finding what you need!
At Armada, we understand that for most CFOs, as well as most companies, insurance can seem like one of those things you don’t need until it’s too late. From cash management to journal entries, your time is valuable, and we understand that you need direct and honest conversations about what you are paying for insurance and why. Our team provides clear guidance as to what you should think about and what you might not be thinking about when it comes to your insurance program. Ultimately, instead of ignoring the insurance conversation, you should feel comfortable knowing how important the right coverages can be to protect your balance sheet while helping your company to grow.