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Bank on it: Financial statements can give brokers an edge

January 9, 2017

Knowing how to interpret a financial statement can give you valuable information about a company’s insurance and risk management needs.

Bart Shachnow

Sales Performance Director

As Sales Performance Director, Bart, with the help of his team, develops and delivers a broad range... About this expert

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Having access to a company’s financial statements can provide key insights about possible insurance and risk management needs. But do you know where to look?
Financial statements have four major components:

  • A balance sheet lists the company’s assets, liabilities and net worth at a given point in time.
  • A cash flow statement reveals the changes that took place from one period to the next (for example, the last 12 months) and may have impacted the company’s cash position.
  • The income statement reports the company’s revenues, profits or losses during a particular period of time (for example, for a quarter or on a semi-annual or annual basis).
  • Notes to financial statements can identify important information, such as accounting methodologies used, financing arrangements and commitments and/or contingencies that may affect the company’s financial status.

These statements, individually and collectively, can help you identify elements that may have an impact on a company’s insurance needs. These include:

  • The company’s financial health (or lack thereof), including positive or negative financial trends and developments, all important considerations in the underwriting process;
  • The extent (or lack thereof) of the company’s recent investment in hard assets (such as property and equipment), which may suggest a need for more or different types of property insurance (ranging from basic property and equipment breakdown to Business Interruption or Contingent Business Interruption coverage);
  • Whether the company has acquired another business, which might necessitate additional insurance or consolidation/coordination of existing insurance and/or risk management programs;
  • Contingencies, such as pending lawsuits, which might suggest the need for more robust liability coverages;
  • Composition of inventory, which can suggest insurance needs including property, crime, and/or supply chain insurance (to protect the reliability of and access to critical raw materials);
  • Quality of receivables, which might be used  to justify trade credit insurance,  in order to enhance and improve existing receivable collection capabilities;
  • Cash position and cash flow, which can help you justify your insurance and risk management recommendations by showing how your suggestions can help meet the company’s budgetary needs.

Being able to evaluate a company’s financial circumstances in the context of its insurance and risk management needs can help you stand out from the competition, because very few brokers use this approach. Brokers who ask the right questions can identify an abundance of insurance and risk management opportunities. Asking the right questions also shows you are prepared, you are concerned and that you probably have potential solutions.

Learn how to analyze and interpret financial statements by having your office arrange for an in-house presentation of Financial Statement Analysis for Insurance Producers (formerly titled, Using Financial Statements to Identify Insurance and Risk Management Needs). Find this and our other CE-accredited programs at Zurich Academy for Select Brokers®.