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 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.
“What you develop is another critical person on your team who will be able to identify new risks as they come up, who will be able to look at things in their financials that they can change around,” says John A. DeFazio, senior vice president and branch manager, Heffernan Insurance Brokers. “It’s an additional member on the team that will help them operate better.
“There are specific insurance questions you can always ask: What umbrella limits should someone buy? Are you buying employment practices liability? What are you doing when you have a wrongful termination lawsuit? It’s a way of benchmarking so that you can run your business knowing that you’ve got most of your bases covered.”
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’s easy to avoid or disregard risk management practices when you’re under siege and losing money and laying people off,” DeFazio says. “But the quality companies are continuing to invest in safety and risk management and the proper analysis of all their exposures to risk. If you want to keep your business operating, you need to establish certain baseline insurance purchasing regardless of the economy.
“There are plenty of ways to save money on insurance, but that doesn’t necessarily mean buying less of it. It just means you’re buying it a little bit differently or maybe you’re choosing a different way to handle a risk rather than buying it.”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.
“It is probably the best time to buy competitively priced insurance in years,” DeFazio says. “So along with the obvious insurance that you’re going to buy general liability, fire insurance, auto insurance you should look at some of the more critical but affordable insurances that people don’t buy all the time directors and officers liability insurance, employment practices liability. One of the biggest ones these days is privacy insurance or cyber liability insurance. Those three insurance coverages are all very affordable and plentiful these days.”
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.”