Business risks and underinsurance: how to protect yourself

A business grows by taking risks, not by avoiding them. But between entrepreneurial risk — the kind that generates profit — and pure risk — the kind that can only make you lose — there is an enormous difference. The latter must be mapped and transferred, not simply endured. And the most common mistake is not failing to insure: it is being underinsured without knowing it.

Before the insurance: mapping the risks

Buying policies without a risk map is like treating symptoms at random. The starting point is a reasoned inventory:

• Asset risks: fire, water, theft, damage to machinery and goods.
• Liability risks: harm to third parties caused by your activity, your products or your employees.
• Interruption risks: an event that halts production or the service and wipes out revenue while costs keep running.
• People risks: accident or illness of the founder or a key person.
• Digital risks: cyberattacks, data loss, systems going down.

Only after estimating the probability and impact of each does it make sense to decide what to retain, what to reduce and what to insure.

Basic cover for an SME

Some are compulsory in Switzerland — first and foremost accident insurance (UVG) for employees and occupational pension cover. Others are optional but often essential:

• Business liability insurance (public liability): covers damage caused to third parties. For many activities it is by far the most important safeguard.
• Product liability: relevant for anyone who manufactures or distributes goods.
• Property / contents insurance: protects premises, equipment and stock.
• Business interruption: replaces revenue lost after a claim. Underestimated and often decisive for the company’s survival.
• Cyber: increasingly necessary, even for small SMEs.
• Key person: protects the business if the person who makes it work is lost.

The hidden risk: underinsurance

Underinsurance is the most insidious trap because it stays invisible until you need it. It occurs when the insured value is lower than the real value of the asset. The consequence, in many policies, is the proportional rule: if you insure an asset for 60% of its value, in the event of a claim the insurer reimburses 60% of the loss — even a partial loss. Example: a warehouse with a real value of CHF 1 million insured for CHF 600,000, a loss of CHF 200,000, reimbursement of around CHF 120,000. The rest is borne by the business.

Typical causes of underinsurance:

• Values not updated: the company has grown, the insured sums have not.
• Underestimating business interruption: you insure the value of the assets but not the revenue you would lose during the shutdown.
• “Inherited” policies never reviewed after changes of activity, new locations or new machinery.

Overinsurance costs too

The opposite problem is paying premiums for useless or duplicated cover — risks already covered elsewhere, disproportionate limits, guarantees that do not apply to your activity. This too is money going out with nothing in return. The right balance lies in sizing each cover to the real risk and reviewing it when the company changes.

A process, not a purchase

Risk management is not buying policies once: it is a cycle. You map the risks, decide what to transfer, size the sums to the real value and review the picture at least once a year and at every significant change — new location, new product, jump in turnover, key hires.

At SIH ONE we help SMEs build this risk map and read it alongside the company’s accounting and asset picture, so that cover is consistent with the balance-sheet values and the real exposure. When did you last review your company’s insured sums? Let’s talk about it.