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Commercial crime and risk transfer

Because of the high risk factors inherent in certain commercial activities, it is of the utmost importance for businesses to adopt risk transfer strategies, bearing in mind that this should not detract from the value of an effective security programme, but rather be considered as an integral part of it.

Risk transfer is simply a structured approach to dealing with the many risks to which a specific business is exposed in order to minimise the financial effect following loss or damage. The consequences of risks can be measured by considering two important factors:

* Frequency - how often a particular type of risk will occur.

* Severity - how serious (in financial terms) a particular risk will be (if it happens).

The importance of insurance

Insurance is the most economic method of providing for the more serious forms of loss or damage. Certain businesses, eg, high value item retailers, cannot afford to be without an adequate insurance cover as even a single criminal event such as a robbery or burglary may force them out of business.

The manner in which such insurance is arranged and the quality of the protection provided for the property insured will have a significant effect on the cost of such insurance. In general terms, a low severity risk could be self-funded within the business and those risks with severe financial consequences should be covered through insurance.

It is important for businesses to select an insurance company that can provide:

* A specialised policy that is designed to meet the needs of the specific sector in which the business operates.

* Competent advice regarding risk control.

Furthermore, when arranging insurance, it is necessary that the companies selected carry out a detailed survey of the premises in order to significantly reduce the potentially onerous duty of disclosure, ie, providing relevant information regarding the security/risk reduction arrangements at their business, which ultimately has an impact on the applicable insurance rate and on whether or not the insurance company is willing to accept the risk.

The problem of under-insurance

Businesses should also make sure that they are fully covered, as being under-insured could lead to considerable losses. Under-insurance refers to a situation where the value for which a business is insured is less than the actual replacement value of the insured items. In today's economic climate this could have a serious impact on the day-to-day finances of a business. If funds are not available to replace the stolen items, businesses may be forced to take out a loan; or worse still, take a step backward and simply not replace many of the lost items. To avoid a situation of under-insurance it is necessary for business owners to go back to their inventory and bring everything up to date. If this is done regularly, they will always be on top of their insurance and will avoid being under-insured on the day of a claim, a mistake that could end up costing them significant losses.

Elio Zannoni is a specialist in threat analysis, reduction and management. He can be contacted at International Threat Analysis on 011 326 2440 or [email protected]

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