In September 2008, the global economy was on the brink of its historic collapse, about to slip from the precipice to the abyss. In September 2009, the financial challenges posed by that collapse ranked as the overwhelming top risk for businesses, according to several national surveys. And now, in September 2010, well, the inevitable recovery appears to have started and some sense of optimism has seeped back, but the risk that swirled just last year remains heavy, ominous for businesses large and small, for businesses like yours.
If you do not have a thorough risk management and business insurance plan in place now, you should start to develop one as soon as possible. After all, recovery or not, there remains a great deal of uncertainty about the economy, and you should pay attention to and manage your risk. If you do not have a relationship with a risk management firm or at least have an internal executive in charge of that department and those decisions you need to pick up the phone now.
Because just as the economy has changed, so, too, has risk management.
“Over the last decade, risk management has really been maturing toward an enterprise or strategic approach to identifying, analyzing and managing risks,” says Deborah Luthi, vice president of the board of directors, Risk and Insurance Management Society Inc. “This approach really targets key risks, both insurable and uninsurable business risks, that most directly affect organizational performance.”
Those risks can include things like workers’ compensation, property insurance and general liability.
“The financial meltdown and the economic slowdown have really brought a heightened duty of care, disclosure and discussion regarding risk to the board level of organizations,” Luthi says. “So I think putting a strategic risk management process in place provides a framework for the board to consider risk and reward for balancing profit and risk against accomplishing the organizational mission.”Plan and move forward
If you do not work with a risk management firm now, the first question is, of course, “Why not?” The second question is something along the lines of, “Do you really need to work with an external firm?”
Especially today, with revenue and profits just inching up if they are increasing at all and every dollar a precious commodity, would you really benefit more from bringing in more experts from the outside rather than turning to your own internal experts?
“You can keep this process relatively simple, and organizations that are farther down the road in terms of enterprise or strategic risk management have found that you can sometimes get wound up in the process and not get it linked into the planning,” Luthi says. “The response that we hear most often is, ‘Keep it simple and designed and customized for your organization.’ I don’t think any organization that practices risk management uses a cookie cutter. Everyone needs to customize it to their own organization.”
You might delegate the responsibilities to a team of executive leaders, with your chief financial officer or chief risk officer at the helm. As always, keep in mind that so many of your employees are already strapped for time each day and might be overwhelmed by additional tasks especially one so important and intrinsic to the future of your business.
If you do work with an external firm, build a relationship with them as you would with any other business adviser. They are on or near the same level as your accountant, your attorney and your banker. The longer and more closely you work with them, the more your risk management will actually take effect in your business plans.
“We need to make sure we understand what their key business objectives are,” says Regina Spratt, U.S. national brokerage leader, Marsh Inc. “How are they measuring themselves? Is it growth in the near term? Is it cost containment? We need that underlying understanding of where they are today, the challenges they face, where they want to go. The next step is how to design a risk management or insurance program around that.
“Those two sort of key pieces of discussion really drive what comes next for that company. It’s about building the structure internally, and then, with the support of brokers or insurance carriers, building it in terms of other resources that can help meet their business challenges and those risks that have been identified.”
No matter which route you choose, you will likely want to listen to experts who recommend you chart and graph yes, graph, just like back in geometry and physics a framework to use in order to reach your decisions. Chart both insurable and uninsurable risks your uninsurable is your brand and your reputation in order to be able to make decisions and define your risks.
“It helps to get it down, so you can make some decisions,” Spratt says. “It’s also a tool businesses can use, in the years going forward, to take a look at their risk profile. They need to understand the profile of their business and their risk management. From there, they can design an insurance and risk management program that helps them today and as they attempt to grow in the future.”Invest and remain active
At many businesses, risk management and business insurance were in that first batch of budget cuts back in late 2008 or early 2009. Everyone needed to cut costs, and a good chunk scaled back on insurance. But the commercial insurance market was soft in 2009 and has become even softer in 2010, making this an ideal time to either jump back in or invest even more.
But money is only one part of the plan to take advantage of your risk management and insurance. Talk with either your internal leader or your external firm and determine where you are and aren’t covered. Many businesses have invested heavily in product recall, privacy coverages, and employee health and benefits during recent months. The only way to keep track of all that is to remain involved on a regular basis.
“The clients we can help the most are the ones where senior leadership is actively and consistently involved in risk management and I don’t just mean in the concept but in building the principles in the organization,” Spratt says. “You end up working as a provider with both kinds of companies, but the benefits and the returns for those companies are very clear when the leadership is actively engaged in the process. I suspect that’s not news, but that’s how we see that play out time and time again.”
You need to pay more attention to your risks and insurance now than during the best of times, and with the soft market still very much in play, you should probably continue to invest as much, if not more, in protecting your business for the future.
“I think it’s valuable no matter what size the company,” Luthi says. “All companies serve a purpose. They have stakeholders or shareholders; they’re there to provide a service or a product and organizations often do this intuitively. But there’s something about having a process that facilitates, that documents, that gets this process down on paper or on the computer.”