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.
“A company who manages risk will in two ways affect their bottom line,” says Ric Peña, regional executive, North Central region, Zurich North America. “One, they will retain losses if a company has a large deductible and they manage the risk. … On the other side of it is, if a company manages risk (and) is able to control their losses over the long term, their insurance premiums will be better than as opposed to if they don’t manage their risk.”
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.
“All companies should have a risk management process,” Peña says. “When they come to an insurance company to control the risk or hedge against the risk, that’s where I come into play. So I basically offer one of many solutions that they can purchase or, basically, solutions that they can put into place to manage that risk; insurance is just one of many.”
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.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.
“There’s always increased risk when the economy isn’t performing as well as it could,” says Nicole Latimer, agency field executive, Northeast St. Louis, State Farm Insurance. “Beyond the usual risk of business downturn, business owners also need to be aware of any special hazards posed by their specific geographic area or their specific political environment.”
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 know that the current condition of the economy is causing people and businesses to reconsider spending in an effort to identify areas where they can limit their expense and perhaps reduce costs,” Latimer says. “Business leaders should understand that failure to properly and adequately protect their full range of assets poses great risks to the organization’s odds of successfully rebounding from an unexpected financial crisis.”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.
“What we like to do is we like to sit down with our clients, and if they’re trying to reduce premiums as opposed to not buying insurance, we talk to them about restructuring their program so they can buy higher deductibles in order to get those costs down,” Peña says. “It means they’re retaining more risk and hopefully they’re doing the right things from a risk management perspective.”
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.
“In building a relationship with one solid agent, that agent will know and understand your business, and as your business changes, your relationship with that person can continue to grow,” Latimer says. “There’s also an advantage that as the marketplace changes and the agent knows of those changes, they can be proactive in getting in front of the client with things that the client may not know about, but they can be concerned with.”