Being uninsured when catastrophe strikes is like taking a final exam without a wink of studying — you're unprepared. But when most people think about insurance, they typically only think of it as financial preparedness. However, insurance also can be a useful business tool with more than one dimension.

Most businesses are required to purchase insurance to prove their financial responsibility. On the other hand, some companies voluntarily purchase insurance to demonstrate accountability. For example, Alliance Steel Service, Minneapolis, is one company that quickly discovered the benefits an insurance policy could provide — after county and state environmental officials came knocking at its door.

Alliance Steel Service purchases, sorts, packages and transports materials such as steel, aluminum, copper, stainless steel, brass, and other scrap materials. Alliance, along with 10 other scrap recyclers and auto salvage yards, received an unexpected visit from county environmental officials, escorted by police, to assess its Minneapolis-area facilities. County officials took samples on each facility's grounds looking for pollutants.

The county's sampling was prompted by a hard lesson from its past. It once inherited a site — similar to the scrap recyclers' sites — which required a costly environmental cleanup. The county began investigating local companies in the community, like Alliance, to ensure that it would not be left “holding the bag” for another expensive cleanup bill in the future.

In response to the county's inquiry, Alliance and its local industry colleagues asked to demonstrate their environmental controls and programs. Currently, there is no regulatory requirement for the scrap recycling industry to adopt environmental risk management programs or to prove their financial responsibility.

Instead of waiting for the county to impose financial responsibilities on the company, Alliance Steel created its own requirements to meet its own needs, while addressing the county environmental officials' concerns. To accomplish this, Alliance first considered securing a line of credit that would assure money for facility clean ups, if the company should change ownership, sell the facility or go out of business.

After checking into various environmental insurance policy options, Alliance purchased a Pollution and Remediation Legal Liability (PARLL) policy. PARLL protects against cleanup costs of any previous, unknown contamination and can be tailored to meet a company's insurance goals. Alliance submitted their policy plan to state and county environmental officials who accepted it as an alternative to establishing a line of credit.

Like Alliance, many firms are effectively using the details of an insurance policy's financial protection to their advantage. For example, during the course of many of today's business transactions, companies are using their insurance policies to market their financial protection, to quell public or regulatory concerns, and to attract buyers, tenants or business partners.

No one wants to be left holding the bag — or bill — to resolve another business' problems. Consequently, insurance has become a major component in closing deals. This is especially true in real estate transactions or mergers and acquisitions. Polluted property that now is cleaned up might remain unsold because of assumed potential liabilities. However, with an insurance policy to help address future liability concerns, the property is a better investment and a better buy.

Most importantly, businesses are becoming insurance savvy by making it work for them.

To read more about insurance, visit www.wasteage.com.