Insurance Risk Management Consulting » importance of risk management

Product Recall – A Primer: Pyramid Defense

Premier Risk Management Admin — Fri, 05 Jun 2009 07:02:33 +0000

This is the continuation of a four-part series. You can read the article that precedes this one here.

Pyramid defense

Think of your risk management plan as a pyramid that outlines a series of defenses to counter the threat of a product incident. The first line of defense is the base of the pyramid. What actions can be taken to eliminate the majority of threats, such as unwanted bacteria, disgruntled employees, malfunctioning equipment, sloppy suppliers, lax testing, etc.? Put that in the first tier (bottom) of the pyramid. Any threats that escape being eliminated by the first tier should be addressed by the second, and so on. As the pyramid rises, the plan becomes more specific and more effective at isolating and eliminating product incident threats.

Tier 1. Total commitment to quality.

The good news is that most of what can be done to protect against a product incident is done (or not done) in the area of product quality assurance and control. Commitment to turning out the highest quality products, day after day, is the best countermeasure to the threat of a product recall crisis. This dedication to quality should be evident in every aspect of business, from manufacturing to marketing. The logic is simple: If the product can’t leave the plant in a contaminated state and the packaging is designed so that tampering is difficult to accomplish (or obvious once done), the odds of experiencing a major incident are considerably reduced.

Tier 2. Prepare with a contingency plan.

The time to plan is before a crisis arises. Research indicates that the first 48 hours of a major product incident are more crucial than the next 48 days. Every company should have a workable product recall and crisis management plan.

Tier 3. Focus with training.

Contingency plans aren’t of much use if they haven’t been tested and honed under simulated conditions to ensure the plan works.

Tier 4. Respond with expertise and decisiveness.

Even with a good team and a good plan, there is a place in a recall crisis for professional consultants.

Tier 5. Transfer risk where possible.

Even the best companies who are prepared for a recall can suffer substantial financial losses. In spite of all precautions, a large-scale public recall may cost millions of dollars in extra expense, lost profits, lost inventory, lost shelf space, and finally lost market share. If it comes to this, the last line of defense is a solid product recall insurance program – one that indemnifies for the host of extra expenses and losses in revenue that come with product withdrawals.

The Hazards of Risk: Part Two

Premier Risk Management Admin — Wed, 03 Jun 2009 07:33:02 +0000

This article is the second of a two part series. Please read the first part before proceeding.

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.

The Hazards of Risk: Part One

Premier Risk Management Admin — Tue, 02 Jun 2009 21:26:04 +0000

A hazard is the potential to cause harm or refers to an occurrence that increases to likelihood of a loss.

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.

Insurance Risk Management Consulting Tip #7

Premier Risk Management Admin — Thu, 07 May 2009 12:06:16 +0000

Insurance Risk Management Risk Tip #7 – D&O Corporate Charter

Whether your organization is a publicly held company, private company (and yes private companies should have D&O too) or nonprofit it is vitally important to have a thorough understanding of the corporate charter, its indemnification of corporate officers and directors and how the directors and officers insurance policy protects their interests and that of the entity itself.

Not all policies are the same nor are their meanings.

D&O policies differ from carrier to carrier in many respects – while the primary coverage issue is to indemnify corporate Directors and Officers for defense expenses as well as settlements and judgments made against them – how each carrier does that is the real issue. There are very subtle differences.

Bottom Line:

When dealing with D&O policies and coverage make sure that you have a full understanding of the terms and conditions that are incorporated into that particular policy – it may surprise you as to what and who is actually covered and how the policy will respond once a claim has been filled (that’s really when it counts).