Risky business Featured

8:00pm EDT August 26, 2009

This economy probably has your company facing heightened risks — risks that you might not be prepared for and that could ultimately cripple your business.

The global economy is the No. 1 risk businesses say they face today, according to the Aon 2009 Global Risk Management Survey. But the survey points out that less than 66 percent of respondents have formally reviewed their major risks or have plans in place to deal with them, including the economic downturn.

Now is a crucial time to have a detailed risk management program in place. After all, budgets are tight, you’re looking for savings and managing risk can directly influence your bottom line.

“By managing risk, you will increase profits; for you will mitigate losses that you have identified and have some control over,” says John Chaney, president of the Cleveland office and regional vice president of Hylant Group. “Managing risk improves and protects your bottom line — and also increases efficiency within the business — and quite often the top line.”

Hiring an in-house executive to focus on risk may financially be out of the question. But a good insurance broker can help you put the puzzle pieces in place, starting with the questions that will lead to true solutions.

Identify potential exposure

Like anything in business, a true commitment to risk management starts with the company’s leadership. Set aside time for your organization’s key players to sit and outline the different risks you might face, such as financial, property and casualty, and legal.

There are a number of assessments you can do — such as risk mapping or enterprise risk management — depending on the amount of detail and commitment you want your program to include. Regardless of what direction you are going, you should include your insurance broker in the conversation. Odds are his or her experience, benchmarking data and outside eye will lead to valuable questions. A good broker has dedicated risk management and claims services and will go through a checklist that will bring your risks to light.

Once your risks have been identified, your broker can help you develop a strategy to quantify your risks and determine whether you should mitigate or transfer the risk.

“We have a checklist and we talk about every type of generic risk that a company could face,” says Ed Kraine, executive vice president and chief insurance officer, The Fedeli Group. “I’ll go over it with them. ‘Here’s the example of the risk to you; here’s what could happen to you. Do we have insurance for it? Do you want to insure it; do you not want to insure it?’

“Our job is to get to know the client’s business as well as we can, and then kind of start asking questions and trying to figure out or mention to (the client) stuff that he or she may not realize.”

The process is fairly systematic, but it’s also continuous. A true risk management plan involves constant monitoring. It’s worth the effort to work with your broker to match a timeline of monthly musts with your plan. Especially in volatile times like today, your company could face different risks than it did six months ago.

“You’ve got to manage your insurance program and your risk management component the same way as you would with your accounts receivable, the same way that you would with any other portion of your operation, because if you don’t, then it’s going to be sluggish. You’re going to probably end up paying too much money, and worse yet, you may have a hole in your program where there could be an uninsured event,” says Michael Agnoni, risk consultant, Oswald Co.'s.

Review risks

Your risk analysis is a great guideline for your specific needs, but there are a few areas of coverage the economy has made more relevant. And today’s evolving risks can be enhanced by geography and industry.

Business interruption and trade credit insurance are two areas to review. If a client can’t pay or your operations are halted, how will those scenarios affect your balance sheet if you’re already strapped for cash?

Insurance executives are warning that desperate times produce desperate people. If you’ve decreased your work force or plan to, keep in mind workers’ compensation and employee discrimination claims tend to rise in a down economy, as do employee crime and cyber theft. Now might be a good time to evaluate directors and officers coverage, employment practices liability insurance, crime insurance, cyber insurance and workers’ compensation coverage.

“In many instances, the benefits are higher for workers’ compensation than they are for unemployment, so you’re getting the unwitnessed slip and fall back claim, let’s say, as employees are getting laid off and walking out the door,” Agnoni says. “That’s a different risk than maybe we would have in a more stable economy.”

Find cost-saving solutions

Insurance is one line item that hasn’t been immune to budget cuts. But before you start scaling back coverage, keep this in mind: We’re still in a soft commercial insurance market — meaning insurance is a cheap form of risk capital.

A 2009 benchmark survey by the Risk and Insurance Management Society Inc. shows a lower average in premiums contributed to a 9.4 percent drop in the average total cost of risk per $1,000 of revenue.

If you’re worried about the size of your insurance allotment, call your broker now, review your contracts and review your risks. You don’t have to wait until your renewal in order to find savings or renegotiate your contract. Just remember, before you can responsibly lower costs, you need the details of what you are and aren’t covered under.

“It’s endless the ways in which you can save through risk management,” Chaney says. “It’s first awareness, then it’s acceptance of and perhaps a quantification of what can happen, and then it’s the action (companies) take and implement to reduce or transfer the risk, perhaps to insurance companies.”

Immediate savings can be found by passing risk to others, such as tenants or vendors. You also can play around with increasing deductibles to lower premiums or scaling back nonmandatory insurance. If the latter two are options, first weigh whether you can financially assume the risk or if the cost of managing the risk is cheaper.

One of the only ways to decrease the costs you can control is by reviewing your claims. You should have regular claims review meetings with your broker to see where prevention methods can be put into place. Your insurance carrier can help with loss control, such as safety training. Some brokers say clients recently have seen cost savings of 20 percent.

Part of the answer is building a long-term relationship with your broker and even carrier. Share with them details of your operations. Invite them to tour your facility. The more your broker understands your business, the better he or she will be able to provide holistic advice. And a lasting relationship with an insurance carrier can mean more flexibility and negotiation.

“This is still very much a people business, and it’s still communicating and talking — talking to your broker, talking to your insurance carrier,” Agnoni says. “You don’t want to just wait one time a year and show up and say, ‘What’s new?’”

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