Why Do You Need Insurance?

I often get asked by people who are just starting out on their start-up journey, “What Insurance do I need?”. It is a fair question, however I always answer with the same annoying answer: “Why do you need Insurance?”. I tend to either get blank stares, questioning looks, or a laugh. And I do tend to ask this to provoke a response, but there is a real reason behind this.

When I was in tech consulting, we learned early on to always ask the question why, because often what people thought they needed or why they thought they needed it hadn’t been properly considered. For instance, Business Analytics tools have become quite popular, and in speaking with clients they often stated, “We need Business Intelligence so we can see the numbers.”.  This really only told half of the story. When continuing to ask why, we would dig down to the root reasons that a client needed those numbers, or thought they did. Quite often, when it really boiled down to it, there was much more that was required, and not for the reasons they thought, and with the proper pre-work and analyzing, we were able to find a more fitting solution that truly met their needs.

The same goes for insurance. It is not a one-size fits all, and it is not as simple as just purchasing a policy. Insurance at its very core is meant to transfer risk and mitigate losses, but how can one know what they need to accomplish this without knowing what those very vulnerabilities are.

The real question isn’t “What Insurance do I need”, the real question is “Have I truly identified all of my risks and determined the proper processes, policies and procedures to mitigate my exposure”.

The first part is to create a Risk Management Framework, which identifies 4 main categories of risk: from minor to major consequences, and low likelihood to high likelihood of occurrence.  Once you have sat down with the proper professionals to properly categorize all potential risks, only then can you truly identify what those risks are that you need to insure.

So I ask you: “Why do you need Insurance?”

Peter Nickel
Industry Leader, Technology