Business Insurance

Business insurance is a critical form of risk transfer. It financially protects the organization from large, unforeseen losses that could severely impact cash flow, liquidity, and financial stability. While treasury does not typically administer policies day-to-day, it has a vested interest in ensuring adequate coverage exists to protect the balance sheet and that risk financing strategies are cost-effective.

Key Insurance Policies for Treasury to Monitor

Corporate treasury should be closely aligned with the Risk Management department on several key policies that protect against large financial losses.

Treasury’s Role in the Insurance Program

While Risk Management often leads, Treasury provides critical input and oversight:

• Risk Financing Analysis: Work with risk managers to analyze the cost-effectiveness of high deductibles versus premiums, and the use of captives (company-owned insurance subsidiaries) for optimal capital allocation.

• Claims & Liquidity: In a major loss, treasury must ensure prompt premium payment to maintain coverage and manage the liquidity impact of large deductibles or uninsured losses.

• Broker & Carrier Management: Support the evaluation of insurers’ and brokers’ financial strength, as their stability is crucial for paying future claims.

• Contract Review: Ensure key financial contracts (loan agreements, leases) have appropriate insurance requirements and that the company is in compliance.

In essence, treasury must view insurance not as an isolated expense, but as a strategic financial tool that protects corporate assets and earnings from catastrophic loss, thereby preserving capital and supporting stable financial performance. Close partnership with the Risk Management department is essential to align insurance strategy with the company’s overall risk appetite and financial objectives.