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4 Employee Risks That Can Impact Businesses

Employees are simultaneously the most significant asset and vulnerability of any business. Here’s why.

On the one hand, the employees of a business provide the skills, expertise, and talent needed to achieve the set business goals. On the other, they also make mistakes that can expose a business to risks that can adversely affect them. As an insurance agent, you can help businesses of different sizes — with and without dedicated HR teams — mitigate these risks’ damaging effects with a comprehensive employee risk management plan.

In this article, we’ll define employee risk management, explain why it is non-negotiable for a business to remain profitable, describe four employee risks that can adversely impact any business, and outline how to combat employee risks.

This article aims to provide you the information you need to write more businesses and equip business owners with the resources and best practices needed to manage employee risks effectively.

What Is Employee Risk Management?

Employee risk management is the process of identifying, analyzing, accepting, or minimizing risks that result from workers’ activities. Why is it essential?

Why Does Employee Risk Management Matter?

Employee risks, like other business risks, are inevitable. Business success entails hiring the most qualified employees to get the job done. In helping a business achieve its goals, these employees also cause damages that the business is liable to. As you’ll see in the next section, these risks fall into different categories.

Mismanaged employee risks can lead to thousands, or even millions, of dollars in claims and lawsuits. These can be pricey, biting deep into a business’ bottom line and leading to bankruptcy in critical cases.

Working with Prime Insurance Company, you can help your clients create a well-structured employee risk management plan and purchase the appropriate business insurance policies to combat risks and mitigate damages to business earnings and operation.

How to Avoid and Combat Employee Risks

We’ll share four essential employee risks any business should avoid — or manage if inevitable. For each employee risk mentioned, you’ll find examples, how they affect core parts of a business, and how you can help companies manage them.

1. Employment Practices Liability Risks

It only takes one disgruntled employee for a business to wind up in court facing thousands of dollars in lawsuits.

Employment practices are activities the employees of a business carry out in the workplace. Employment practices liability risks arise from unethical or illegal activities carried out in the workplace.

These risks result from employee-employer interactions and can include the following:

  • Sexual harassment
  • Defamation
  • Deprivation of privacy
  • Discrimination
  • Deprivation of promotion, raise, and opportunities
  • Deprivation of employment

Employment practices risks can lead to claims and lawsuits that negatively impact a business’ reputation and revenue. For example, an employee can sue their manager for sexual harassment. In such a case, the company — not the manager — is liable. Sexual harassment cases can dissuade top talent from working with a company and destroy their reputation. In extreme cases, sexual harassment claims and lawsuits can lead to thousands of dollars in damages.

Follow these steps to help businesses develop an effective employment practice risk management plan.

  • Assess the business’ risks: Work with business owners to assess their employee activities and identify the employment practice risks their line of work exposes them to.
  • Establish clear policies and processes: Recommend business leaders create hiring procedures and rules, appropriate workplace behavior, performance reviews, and a fair salary structure. Also, they must make these rules common knowledge among their team members.
  • Purchase the appropriate insurance coverage: Even after setting ground rules, things can still go wrong. Comprehensive insurance coverage transfers employee practice liability to an insurance company, which will protect the business’ funds and operations in the event of claims and lawsuits.

You can work with Prime to determine the specific risks a business faces due to their employee activities and help them decide the insurance coverage they need to purchase.

2. Professional Liability Risks

Employees can delight and dissatisfy a business’ customers.

Professional risks result from employee mistakes, negligence, and errors while serving their clients. They may arise from rendering unsatisfactory services or products to customers. Professional risks exist in employee-customer interactions, and can include the following:

  • Selling expired products to customers.
  • Delivering incomplete products or services.
  • Making mistakes that cause damages to customers.
  • Shipping low-quality products.
  • Defaulting on a contract.
  • Compromising a client’s data.

A comprehensive assessment will uncover the professional risks the business may encounter.

For example, an employee of a business advisory firm may offer a client incorrect financial advice or overlook crucial parts of the client’s business that later led to losses. If mismanaged, professional liability risks can lead to thousands of dollars in claims, lawsuits, and damages, destroy a business’ positive relationship with its clients, and ultimately affect its bottom line.

Follow these steps to help a business develop a professional liability risk management plan.

  • Train employees: Business owners must ensure they provide the right employee tools and training to serve their clients efficiently.
  • Establish a quality assurance program: Advise business owners to create a quality assurance process where workers are responsible for double-checking services or products before delivering them to clients. Doing so will uncover mistakes and errors in their service delivery.
  • Purchase the appropriate insurance coverage: Even after training employees and implementing a quality assurance procedure, people might still make mistakes. Helping a business purchase professional liability insurance — also known as error and omission insurance — may cover claims and lawsuits due to professional errors.

Work with Prime Insurance Company to evaluate the risks a business might encounter from employee mistakes, and help them purchase the appropriate coverage for their unique needs.

3. General Injury Liability Risk

Employees can harm and cause physical injuries to themselves, clients, and third parties.

General injury risks are injuries and damages incurred by or caused by the employees in the workplace. Some injuries might result from specific working conditions or negligence by employees. For example, employees who work with heavy machinery are more vulnerable to physical injuries.

Examples of employee injury risks businesses may encounter include the following:

  • An executive trips and falls in the workplace, which leads to a head injury.
  • A sales rep or receptionist develops hearing loss as a result of constant phone calls.
  • A material handler in a warehouse falls from a ladder in the warehouse and breaks his arm.
  • A customer slips and falls in the workplace.
  • An employee says or publishes a false and defamatory statement about a competitor.

If not managed effectively, general injury risks can lead to thousands of dollars in lawsuits and damages. It can also adversely affect a business’ bottom line, reduce trust in their brand, and alter standard operations.

Here are some ways you can help business owners start putting together an injury liability risk management plan.

  • Set up a safe workplace: Business owners must ensure the work premises comply with OSHA safety requirements. Also, employees should possess the needed equipment to ensure their safety while working.
  • Train employees to advocate for safety: Business owners must educate employees on safety measures and avoiding injuries in the workplace.
  • Purchase the appropriate insurance coverage: After training employees and setting up a safe workplace, injuries can still occur. General liability insurance and other injury-related insurance policies can cover the cost of claims and lawsuits for a business in cases of injuries.

4. Fraud and Financial Malpractices Risk

Every day business owners trust their employees with their business finances, they risk fraud, embezzlement, and funds mismanagement. However, to run a successful enterprise, business owners must delegate essential tasks to their employees.

Employee fraud comes in different forms, some of which can go unnoticed for a long time. In critical cases, fraud can bankrupt a business.

For example, imagine a company’s chief accountant secretly transferring business funds to her private bank account for months. This unethical behavior can lead to thousands of dollars in losses and may affect the company’s operation and profitability.

Beyond embezzlement, employees can make mistakes that put a business at the risk of losing a lot of money. You can help business owners mitigate the occurrence and effect of fraud with effective risk management strategies like these.

  • Conduct frequent financial assessment: Business owners should set up regular checks on their finances and bank accounts to get a clear picture of cash flow.
  • Double-check all financial transactions: Business owners should implement authentication and approval procedures for every financial transaction in their organization.
  • Purchase the appropriate insurance coverage: A fraud insurance policy will cover financial losses in events of fraud or embezzlement by a business’ employees.

Employee Risk Management Best Practices

What are some employee risk management best practices businesses can follow to protect their financial interests and positive reputation? Here are five practices you can help businesses adopt to protect themselves against the negative impact of employee risks.

1. Proactively Manage Employee Risks

In business, taking a “wait-and-see” approach is dangerous. Business owners should not procrastinate on identifying gaps in their training or processes until an issue arises. Organizations should conduct ongoing assessments of their business to uncover emerging risks and create measures to manage them. For instance, a proactive approach to managing financial transactions can mitigate the risk of fraud and fund misappropriation.

2. Train Employees

Some risks are due to ignorance and errors by employees. Business owners should set up programs and workshops to educate their team on workplace policies and professional best practices. Consider offering training on workplace safety regulations and strategies to reduce workplace injuries.

3. Have a Comprehensive Insurance Policy

Humans are prone to mistakes. When these slip-ups cause critical damages, they can lead to claims and lawsuits that adversely impact a business’ bottom line and its ability to keep operating. A business insurance policy transfers the burden of these damages to the insurance company. Purchasing general liability insurance can cover lawsuits and claims for injury without cutting into their other business funds.

4. Avoid Assuming Best-Case Scenarios

Business owners can’t rely on luck to prevent their business from incurring damages. The best way they can protect their business is to imagine all the possible things that can go wrong, then create a plan to address these problems.

5. Consistently Review Risk Management Program

Everything changes, so business owners should stay on their toes by regularly evaluating their risk management program, insurance policies, and employee compliance with policies and procedures. This agility will enable them to quickly address developments that can negatively impact them.

Partner With Prime Insurance Company to Write More Businesses

Prime Insurance Company partners with insurance producers to offer comprehensive insurance coverage for business owners. Our goal is to provide businesses of different sizes the freedom and peace of mind they need to operate successfully.

We work with businesses nationwide, with an all-in-one approach that allows us to provide coverage you won’t find elsewhere on the market. We’ll work with you in assessing a business’ current insurance policies to identify and fill in any gaps. Also, we have an in-house team of legal experts that handle issues for our customers.

AM Best, the world’s first credit rating agency, has given us an “A” (Excellent) raiting, which means businesses can be confident in our reliability and financial stability.

Our in-house underwriting team works quickly with you to write more businesses. Contact us for a free quote or give us a call at 877-243-8181 to discuss your insurance needs.

Note: Currently, Prime Insurance Company does not provide workers’ compensation insurance.


rick lindseyAuthored by Rick J. Lindsey, CEO, President, and Chairman of Prime Insurance Company

Rick J. Lindsey hails from Salt Lake City, Utah. He began working in the mailroom of his father’s Salt Lake City insurance firm, getting his introduction to the business that became his lifelong career. Lindsey quickly rose through the ranks while working in nearly every imaginable insurance industry job. As an entrepreneur, specialty lines underwriter, claims specialist, risk manager, and a licensed surplus lines broker, Rick Lindsey is highly skilled in all levels of leadership and execution. As he progressed on his career path, Rick discovered an urgent need for insurers willing to write policies for high-risk individuals and businesses. He was frequently frustrated that he could not provide the liability protection these entities desperately needed to safeguard their assets. He also formed the belief that insurance companies acted too quickly to settle frivolous claims. Lindsey decided to try a different approach. He started an insurance company and became the newly formed entity’s CEO. This opportunity has enabled Rick to fill a void in the market and provide a valuable service to businesses, individuals, and insurance agents who write high-risk business. Prime Insurance also specializes in helping individuals and businesses who live a lifestyle or participate in activities that make them difficult for traditional carriers to insure. If you’ve been denied, non-renewed, or canceled coverage, don’t give up quite yet. Chances are Prime Insurance can help.

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