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.

“The idea of risk management is to reduce and hopefully eliminate both the frequency and severity of losses,” says Lauren Bryant, senior vice president, M.E. Wilson Co. Inc. “Ultimately losses do affect that bottom 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.

“The goal is to analyze what is there, what does that client need, and have dialogue with the client so the client can decide how much risk they can take themselves,” says Alan Read, executive vice president, Stahl & Associates Insurance Inc. “It’s a lot more than just going out there and gathering information and coming in with a quote.”

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.

“By buying the proper insurance products, they’re protecting themselves against lawsuits and protecting themselves against uninsured events,” says Doug Moore, vice president/agency manager of operations and bond manager, BB&T — Iler Wall & Shonter. “So it’s really a risk management issue to have the proper policies in place.”

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.

“I think to a certain degree some of (today’s) risks are very similar and are currently existing but are more pronounced with the present state of the economy,” Bryant says.

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.

“With staff cuts and employee layoffs, (companies are) facing employment practice liability suits for wrongful termination,” Moore says. “On workers’ compensation insurance, they’re facing workers that are claiming injury so they won’t get laid off — that kind of stuff to try to get some benefits out of it.”

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.

“Most companies are analyzing not only the types of coverage that they’re carrying but also the limits that they carry,” Bryant says. “We have done a lot of that over the last year, just analyzing where there might be an opportunity to cut in coverage.

“But a lot of times, they need those coverages both from the standpoint of their exposure and from the standpoint that they might have contracts in place that require they maintain certain limits of coverage.”

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.

“There are risk-management tools available from the insurance companies that will provide loss-control services to help maybe change the way some things are done, and the end result is that there’s less claim activity and so there’s less cost,” Read says. “Many times those things can be done at no cost to the employer.”

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.

“It goes back to the importance, as I said in the beginning, having that ongoing dialogue with that risk manager who is going to understand everything that business does,” Read says. “He will help guide the business through those decisions of what to insure and what not to insure.”