Dealing with risk is something every entrepreneur and small business owner is intimate with. Striking out on your own, forging reality from a vision, requires courage and, of course, a certain amount of risk.

Basically, insurance came into being as a hedge, a protection from risk. Insurance could not exist without the presence of risk. When you begin to formulate your risk management strategy, you will that certain categories of risk may demand that you transfer that risk to someone else, generally an insurance firm. The insurance firm, however, is not just going to insure anything. They, too, are in the risk management business and they need to manage it so that they can cover their clients as well as remain profitable.

The insurance firms tend to look at your risk on an individual level. They do not treat all of your potentially insurable risk as the same. Covering you for a damaged or broken printer is not the same as providing coverage in the event of a natural disaster. Like you and your business, an insurance firm needs to pool their risk sometimes. They need to spread it out so that the risk does not overwhelm their resources.

When formulating your risk management policy, it is prudent to consider insurance for your major risks especially for those you have little or no control over. The insurance firm will, usually, stay with their proven strategies of risk transfer and risk pooling. By doing this, the insurer can bring a large number of risks together in an effort to diminish future potential losses.

Basically, by pooling similar risks together, the insurance firm can remain financially viable while providing compensation to those risks that materialized. All insurance firms understand that there will be a few insured risks that will happen and have to be compensated. By pooling, however, they can shift the financial burden to those individuals or companies that are in the pool. The many provide the compensation for the few who suffered losses. What the insured do is trade a known cost, their premium, for the future compensation for an unknown cost, their manifested risk.

In the end, however, it is up to you, the small business owner. You know your risks, you have your risk management strategies in place, and understand the tactics involved in minimizing your risks. Not all risk is the same so when sitting with your risk advisor, you can easily plan for your type of risk and negotiate your premiums from there.