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.
“First and foremost, it lowers your cost of uninsured losses,” says Matthew H. Davis, resident managing director, San Francisco, Aon Risk Insurance Services West Inc. “Second it lowers your cost of insurance premiums. … And third it minimizes the impact of financial disruptions to your business.”
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.
“We recommend starting off by just sitting down and identifying the top five or six, or could be more, risks that could truly threaten the viability of the company,” says Brian Murphy, vice president, Heffernan Insurance Brokers. “These aren’t necessarily insurable risks; they can be any risk facing the company.”
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 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.
“Business is very dynamic; the way our business runs today is not (going to) be how it runs six months from now,” says Trish Drew, vice president of marketing, Jenkins Insurance Group. “Things change and so the closer that relationship is and the more the broker knows the intricacies of how that business is run, the better poised they will be to make recommendations about change or suggesting new ways of mitigating risk.”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.
“The poor economy hasn’t created new risk, but it has greatly enhanced and complicated risk that organizations already face,” Davis 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.
“We don’t think that the types of insurance have necessarily changed, it’s just a matter of taking a look at all of those insurances given the economic climate,” Murphy says.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.
“Many companies are going through cost-reduction measures, so in the risk management space, we have had several clients that are being forced to reduce their overall spend,” says Tane Abbott, managing director of the San Francisco office of Marsh Inc. “We generally don’t recommend they stop buying insurance, but what a lot of companies are doing is looking at their retention levels, deductibles, so essentially what they’re retaining of every loss and perhaps increasing them in exchange for lower premium.”
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.
“Roughly 65 to 70 percent of the risk management cost comes out of the loss side,” Abbott says. “While many companies focus on the premium, helping to reduce that loss component, ultimately, over the long run is the best place to focus because that will save you money directly on retentions and will help lower your premiums in the long run.”
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.
“I think probably the most important thing is the continuity that you have in that relationship,” Drew says. “By building a history with a broker, they become almost a part of your organization.”