A glove manufacturer based in Arkansas that sold defective fire resistant gloves to the New York City Fire Department has shuttered it’s doors. I highlight this piece of news as this is the ultimate NET INCOME LOSS. Had they used the time tested tools of risk management, this situation could have almost certainly been avoided. According to a New York Times Article the problem stemmed from switching an interior lining material that had passed all of the qualifying tests, for an inferior material that resulted in firemen in New York City receiving burns on their hands that should have been afforded protection by these “state of the art gloves”. Check out this link on the New York City fire Departments web site touting the new gloves! Fire Fighters Get New Blaze Fighter Gloves
In situations like this you most certainly can’t buy enough insurance. Any limit you purchase would be near exhaustion if you sold enough product.Once more the renewal premium may be too high for them to absorb driving their fixed and variable cost structure beyond the competitive threshold. A critical point is that most of the Net Income Loss experienced by a situation like this would not be covered by insurance, but absorbed by the business. Loss of goodwill, the effort to institute a sizeable product recall, the diverting of critical cash flow and resources such as employee effort to deal with this mistake is not covered by insurance. That kind of productivity loss, sales, marketing PR e.t.c. sits on your profit & loss statement impacting not just your short term results but ultimately the viability of your company.
Had there been a protocol in place that would have put each component of the glove through rigorous product testing before a decision is made to abruptly change course, the probability of this type of event would be greatly reduced. Beyond product compliance, design, and testing purchasing product from a large manufacturer with significant resources to back the performance of their product component is usually a great strategy as it would have enabled this glove manufacture to pass a great deal of this risk, and loss from their balance sheet to that of their vendors. Too often in the unyielding quest to drive down product costs I see companies choose the ‘Cheapest” product, which ultimately results in a much higher cost throughout the lifetime of the business relationship. I see this often as I watch C.F.O.’s and small business owners buying patterns as it relates to insurance. They unwittingly jump at the lowest quoted premium rather than fully evaluating how much risk they are retaining , versus how much they are transferring, and at what potential cost. Risk should be the most important component variable and not insurance premium. Ultimately C.F.O.’s , small business owners and sadly many of the brokers that place NY & NJ Commercial General Liability Insurance only know how to evaluate the proposal based upon premium. It’s a much easier variable to quantify which is why so many mistakes are made.
Don’t goes toes up like the The Glove Corporation . Stop buying insurance, and hire a Risk Advisor. Your business life may depend on it!!