Insurance and Risk Management – Risk or Investment?

How do you view risk management?

How do you think about the cost of insurance?

Is it an expense?

Or an investment?

As a CEO, CFO, COO, VP, Controller, Manager or Board Member of a company, if a part of your responsibility is to oversee or provide input on your company’s insurance program, then -

You ARE a risk manager. Whether or not you are fluent in “insurance” is another issue. Regardless, you still have to ask yourself, “Do I view risk management as an investment or an expense?”

The answer will drive the success of your program.

The recent “Protecting Value Study“ from the commercial and industrial property insurer FM Global, the Financial Executives Research Foundation, and the National Association of Corporate Treasurers (NACT) polled nearly 400 CFOs, treasurers, and risk managers at both U.S. and international companies from a broad variety of industries. They asked the “How do you view risk management?” question.

The study found that 85 percent of the respondents indicated that they view risk management as an investment. In particular, they do so because they believe that it protects their business continuity. As a result, they believe there is a realized return on investment.

One of the surveyed CFOs summed up risk management in this way, “Risk Management is an investment because it is instrumental in protecting the future value of the company and mitigating exogenous events that could impact the ability of the company to generate a positive return to its shareholders/owners.”

Executive level insurance decisions are not just about hedging bets. It’s as fundamental to the well being of the entire business enterprise as the investment in, say, labor or materials. And, as with all investing, the measure of “the best” insurance isn’t necessarily that it’s the cheapest.

Still, the insurance decision-making process often has “how much does it cost” as its pivotal consideration.