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?
“There is a benefit to that partnership,” says Regina Spratt, U.S. national brokerage leader, Marsh Inc. “The tangible benefits include a broker who deeply understands a company’s business how it’s measuring itself, what its risks are and who is just going to be able to do a better job of presenting that risk to the insurance marketplace. The more comfortable and better informed the underwriters are, the better the program design and pricing the company will get. There’s a direct translation in terms of being able to be a terrific advocate in the insurance marketplace.”
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 it as you would with any other business adviser. The firm is on or near the same level as your accountant, your attorney and your banker. The longer and more closely you work with the firm, the more your risk management will actually take effect in your business plans.
“Insurance relationships are like all other professional relationships,” says Phillip J. Luecht Jr., executive vice president, Aon Risk Solutions Inc. “If you invest in building solid long-term relationships, those relationships will pay dividends when a major claim or coverage dispute arises. Embrace your broker and insurer as partners; they have tremendous insight gained from working with a variety of clients that will help ensure your business prospers.
“Assemble an internal team including the CFO, treasurer, risk manager and general counsel. Then, in combination with your risk adviser or insurance agent, begin an in-depth identification, assessment and prioritization of the risks inherent in the business today.”
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.
“Most firms only think in terms of traditional hazard risks, including fire, employee and professional liability,” Luecht says. “However, a comprehensive risk inventory includes financial, operational and strategic risks, as well, so it is essential to inventory all organizational risks. With an inventory complete, assess the likelihood and severity of each risk, and map/graph the results. This is an interesting way to view the holistic risks your organization faces and helps to prioritize which risk to work on immediately. Then, review your past loss history and have your risk adviser compare your results to those of peer companies. Determine if your performance is better/worse than your peer group.”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.
“Most companies purchase property, workers’ compensation, general liability, automobile liability, excess or umbrella liability for catastrophic multimillion-dollar claims and employee benefit coverage,” Luecht says. “[But right now, companies might also want to keep an eye on] many professional liability coverages like directors and officers liability, errors and omissions coverage for professional breaches, crime, fiduciary and employment practices liability.”
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.
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.
“The clients that any broker can help the most are the ones where that 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 and at the tip of t he spear in the process.”