The view from 30,000 feet: One of the most important roles of any executive is to orchestrate and gather resources that can help them to optimize the performance of their company. There are many risks — organizational, strategic, traditional hazards, regulatory, environmental and technology, just to specify a few.

The C-Level executive must be in a position to draw upon talent in every area to better identify risk. The investors require it. The Board requires it. Employees require it. Orchestrate and gather your resources!

Many times losses (physical, human and financial) are the result of not identifying hazards that can lead to a loss. Sometimes it’s just common sense. And other times it’s a lot more involved.

Be proactive in your approach. Identify potential hazards and remove them or have them eliminated. It can save you, your business and most important of all, your employees from suffering serious harm.

Example: There, on every pack of cigarettes, is the Surgeon General’s hazard warning. It’s there for the consumer’s enlightenment.

But what about the hazard cigarettes pose for the company? If smoking is allowed in your building there is an increased likelihood that fire will occur.

And, relatively speaking: How great a hazard is that compared to the overloading of workplace outlets or if your non-licensed maintenance/repair staff installs additional electrical wiring in a shoddy manner thereby increasing the likelihood of a short which could cause a fire? This may seem to be getting down to fine detail, but sometimes this is the difference between the success and the failure of a risk management program.

Always keep in mind: Risk management is not meant to be negative. It is clearly a positive opportunity to increase margins and decrease expenses – resulting in an increased or optimized return on investment.

The real trick is to recognize and address hazards that can lead to a potential disaster or even an opportunity. While most C-Level executives are lay people in this regard, there are experts in varying disciplines as well as loss control experts who can assist in identifying these hazards.

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.

An employee is injured … A fire occurs … An invitee trips and falls …

Unfortunately many companies are not focused on loss control measures until -

It’s too late. It’s probably accurate to say, beyond the “human” considerations, insurance often foots a big piece of the bill. But often at a cost that, in the longer term, doesn’t serve the financials as well as an upfront investment in loss control would have.

Risk management is all about reducing and mitigating the exposure to risk which in turn reduces costs.

Basically there are three loss control approaches -

Avoidance, Prevention and Reduction.

Each of these can be employed in a pro-active or a re-active fashion. In addition there are a few other loss control tools that can be utilized to reduce risk – separation, duplication or redundancy, contractual transfer and salvage.

Becoming more proactive in your C-Level approach to loss control will serve to help reduce the overall cost of your organization’s insurance and risk management program. By taking a proactive approach to loss control you also place your company in a strong position when it is time to renew your coverage.

Another point to remember: Binders are extremely important. They evidence coverage in lieu of a policy. It’s very important to review binders in detail at the C-Level prior to receiving your policy.

Here’s why: What’s printed on the binder relative to aspects of coverage is your coverage prior to receiving a copy of the full policy.

In addition: If the fully-formed policy appears to differ from what you understood was contained on the binder, then you have the binder to help clarify the coverage issue in question.

A $3.7 billion dollar difference. Most readers of the Guide will be familiar with the headline-making example of the Silverstein Real Estate Group’s involvement with the World Trade Center property. Coverage was in dispute because the terms and conditions of the binders in question were not clearly spelled out regarding the definition of an occurrence.

Lesson learned: If your policy is not written correctly from the start, then you are not making the most effective use of your firm’s time or money because it will not do what it was intended to do.

Always obtain a full and complete binder of insurance with coverage details outlined. Detail, Detail, Detail. It’s the details of coverage that are important!

• Most of the time exclusionary endorsements are clear to all parties prior to binding the policy.
• Other times they are obscure, buried in highly-confusing policy language, not known or fully understood at the C-Level until a loss occurs.

In either case: In the event of a loss, what’s in the contract is what the insurance company will go by. That’s why it is so important to have your policy reviewed and analyzed to make sure that it will do what you believe it’s intended to do.

Case in point:  A prominent real estate firm engaged us to review a property policy for a just-purchased building in Philadelphia. The $30,000,000 building was currently vacant and being renovated. To cover the building their broker sold them a new, separate policy.

Unlike previous policies that had been arranged for the real estate firm, this new policy contained a “protective safeguards” warranty, which required the client to have 24-hour security on the vacant premises and a fence surrounding the property. Lacking that, in the event of a loss there would be no coverage. Until we alerted them, the insured had no knowledge that the policy contained such a warranty.

Had a loss occurred with the above referenced provision in place, the insurance company could decline coverage based on this point and the claim would have been litigated. Not the kind of scenario you want to have happen. It would have been costly and time consuming for the insured to resolve the issue.

In the final article in this series, we’ll look at another important point you’ll want to remember.

If you are using an insurance policy as a means and maybe the only means, to transfer risk, then the answer could be your insurance policy!

Let’s see why…

Every word in this document means something and the insurance company knows what every one of those words mean and how to use them… potentially against you.

The insurance policy is a contract. 

Don’t let the word “policy” fool you into thinking otherwise. What’s contained in the contract will determine how much protection you have when a loss occurs – how, when and how much you will get indemnified (paid). 

Once you have a claim, your “policy” becomes a “contract”. See the difference?

We’ll go into a bit more detail in the next part of this series.

Let’s take a more specific look at what exactly risk management is about. Searching the literature I find a number of definitions. Here are a few I think focus your thinking:

1. Risk Management is the practice of protecting an organization from financial harm by identifying, analyzing, and controlling risk at the lowest possible cost.

1. Risk management is the active identification, evaluation and management of all potential hazards and exposures to loss that a company may experience.
2. Risk management should be a continuous process of identifying loss exposures, measuring them against the firm’s ability to tolerate them, then handling them with the appropriate control, transfer or financing techniques.

The most fitting is the first definition because it is very blunt with regard to “protecting an organization….at the lowest possible cost.” Everything else is a discussion point. You should always try to keep this in mind when discussing the purchase of an insurance product or discussing other risk management techniques because, after all, that is what we are all after – the lowest cost.

The challenge is to think about ways in which to reduce costs, properly communicate the pros and cons of each choice and arrive at the proper solution that will best protect the organization.

However, the key to definition #2 is that it has the word “active” in it. It’s absolutely essential that you keep informed about things going on around us – locally, nationally and internationally – that bristle with the potential to affect your business/organization in an adverse way. Once you recognize a certain “exposure”, you must act on it one way or the other. And, obviously, one of the “act on it” steps may be classic insurance.

REDUCE THE RISK / BOOST YOUR BOTTOM LINE

Protecting your organization from financial harm is the #1 Goal. Doing that, at the least possible cost, is admirable (but not practical) – you must be actively involved in recognizing potential exposures and hazards on a continuing basis throughout the year. Jump in with both feet and ask, “How can we improve our risk management program today and tomorrow and beyond?” That’s a continuous process.

Definition #3 identifies risk management as a “continuous process.“ It’s not appropriate to establish or simply renew your insurance program and then put it up on the shelf until next year. Risk management is a continuous process that begins even before a policy is written and does not really end at all.

It is a work in process/progress where you continually look to improve coverage, terms, conditions, claims reporting/handling, loss control/mitigation, exposure analysis/identification and the like, year after year.

Five things you can do to help reduce your workers compensation experience modification.

1. Report all claims to carrier immediately. Use a phone call to alert carrier to any serious, potentially serious, or suspect claims. 
2. Investigate accidents immediately and thoroughly. Take corrective action to eliminate hazards. 
3. Take an aggressive approach to providing light duty to all injured employees upon their release from treatment. Supervise light duty employees to assure their conformance with restrictions. 
4. In serious cases that involve lost time, communicate with the claims adjuster so that they recognize your interest in returning the injured employee back to gainful employment. 
5. Set safety performance goals for persons with supervisory responsibility. Success in achieving safety goals should be used as one measure during performance appraisals. 

Many times clients have horrendous experience modifications and ask us for help. What we find when we investigate the root cause is that their program has been neglected and they don’t have proper procedures in place to mitigate claims.

What is meant by this is that when claims occur they are reported, sometimes improperly, and then left to the insurance company to handle with no follow up whatsoever. A company/organization CAN be in control of their modification – you just have to spend some time doing the things that will make a difference.

Bottom Line:

Review and analyze the root cause of the elevated experience modification, create a plan to address the issues head on and then work the plan. Be aggressive and be in control.