What is the total cost of risk in your business activities today? It has not changed when you look at it from a different angle than I know you are thinking right now. I am not going to talk about specific dollars. Let’s look at it from a different level. There are 4 components to the Total Cost of Risk.
What goes into the total equation is as follows:
Total Premium- The annual Insurance Premium that you pay.
Deductible- What you agree to pay in the first part of any insured loss, with the balance being paid by the insurer.
Uninsured Losses- This is a loss that takes place that you have chosen to pay for yourself and not have it covered on the policy or deemed it best given the size of loss and your current claims history (hopefully this is a well-discussed and an understood decision).
Risk Management Administration Expense- this would include the time that you spend making insurance decisions and reviewing your policies, developing and exercising loss prevention programs, having/improving safety practices and standards, etc.
There is more to the “Total Cost of Risk” than you initially thought, isn’t there. When reviewing your risk and when making decisions on this topic I believe it helps to step back and look at the overall picture. Your Insurance Broker is there to help you keep the “Total Cost of Risk” under control and to help with managing this. It is beneficial to deal with someone who you believe can relate and understands your business. After all, you are taking their advice when you are making these crucial decisions.
Today’s farmers should purchase insurance from people who know farming. Farming should be viewed as a business, and you should seek advice from people who understand your business.