Insurance Vs Business Continuity Management (BCM)
Adelakun Oluwafemi Adeshola
MBA Risk management, AIOR, ARMA
Many scholars have argued the relevance of insurance to business considering the unpredictability of events and disruption to business and conclude that all that is needed to buffer for losses is Insurance. This view is true to an extent, but short-sighted as it doest not give consideration to long term issues of continuity and sustainability. Insurance often provides support and recovery aid following a known loss or disaster event. while some some companies struggle to recover after a loss even after being indemnified by their insurer, some automatically goes into ceassation following a disaster event. it is therefore important to understand the role of insurance within an enterprise and accord it importance where necessary. More often than
not, organisations rely heavily on insurance and have replaced the need for
continuity strategies with reliance on insurance. Businesses don’t see the need
for business continuity strategies or they are ignorant of the need for
BCM. Traditionally, insurance only
provides indemnity against tangible losses while the intangible loss which
affects the business on the longer term is not covered. This is much aligned
with the concept of disaster recovery. However, most businesses
don’t tend to recover even after the insurance aid/indemnity. Often times,
there is a gap between the time of incident and recovery and competitors who
are more strategic will leverage on this for competitive advantage. Following
the complexity and stiff competition within our current market and operating
environment, it is unwise for business to still rely solely on insurance as a guarantee
for indemnity against losses, rather, the focus should be on how business will
continue and resume operation in the face of disruption or disastrous event.
This strategic view is what is known as Business Continuity Management (BCM). Businesses
which focus on recovery rather than continuity will always be a strong advocate
for insurance. Although, insurance on the short term will provide compensation
and support in loss events, it does not provide or guarantees organisational
resilience. However, long term issues such as goodwill, reputation damage,
loss of market share and customer confidence are not indemnified by such
insurance.
There are
certain risks that cannot be protected by insurance, but can only be managed by
contingency planning. This is not to say that businesses should not have
insurance covers, but it should not be the main strategy, hence, the level of
insurance cover required should be subject to the outcome of the business
impact analysis (BIA). It might interest you to know that developing a sound BCM
strategy provides cost reduction to businesses in diverse areas especially with
premium payments on Insurance. Sound BCM demonstrates to an insurer that an
organisation is proactively managing its business risk. This is because,
business continuity management helps to identify inherent business risks, and
moreover, the ability of a business to recover and mitigate losses is often a
requirement of insurance policies in most developed economies which should be
the case across global business domains. Hence, organisations with
comprehensive business continuity strategies are categorised as those with
lower risk profile, as such this will help them in securing lower premium. Alternatively,
the very exercise of embarking on a BCM programme may mean that you are
confident enough to buy less business interruption insurance.
Overall, the
required operational resilience that will enhance sustainable business growth
and operational efficiency is attained via Business Continuity Management.
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