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.

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.

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).

As always if you have questions you can simply ask us by responding to any of the articles published here with a quick reply. There’s no cost associated with quick questions, just fill out the form below any article. 

We look forward to helping you, and would also love some suggestions for future articles.

In too many situations insurance decisions are made piecemeal … over time … at varying levels of corporate responsibility … without an understanding of needs and coverage, costs and benefits … with little or no sense of how the varieties of insurance-related decisions intersect or interact.

The objective of the book is to inform the executive in often-overlooked opportunities and share insights and strategies for maximizing the benefits of a comprehensive, well-considered insurance plan.

The payoff for a company realized through the application of these strategies include, but are not limited to, the reduction of management time and stress, increased flexibility, reduced risk, cost savings and enhance overall profitability.

The information and ideas contained in the guide are based on more-than-a-quarter-century of experience providing insurance advisory and transaction advice and services to public, private, not-for-profit, domestic and international organizations. The book offers a structured approach to understanding the magnitude and import of issues associated with varied insurance transactions written in a down-to-earth manner.

A soft bound edition of the book may be purchased on Amazon.com Target.com or Bookscapes.com.

Every facet of your organization affects your cost of risk. It is difficult, at best, to quantify all aspects of this total cost of risk. For example, if you manufacture specialty equipment or products and you are faced with a recall, what is your loss of reputation or market share? In contrast, other components of your total cost of risk are easily quantifiable, such as insurance premiums, or the downtime of a custom piece of machinery and the resulting lost production.

Total cost of risk is an insurance term describing the cost of both pure and speculative risk. Additionally, cost of risk is synonymous with price — the price of your risk management program. We at Premier Risk Management take a total cost of risk approach to positively affect your price.

Our goal is to structure a risk management program that protects the four main asset categories of your business:

· Organization

· Personnel

· Property

· Net income

The structure of your risk management program looks to the endgame of your price. To reach the endgame you seek, we must first further define Risk Management into four key tenets:

• Identification of exposures through analysis;
• Implementation of control measures to those exposures;
• Risk transfer or financing; and
• Management of current and future exposures

Identification of Exposures:

Exposures are both qualitative and quantitative. Analyses into both arenas offer the starting foundation of understanding your current exposures to develop forward-thinking approaches. The qualitative discussion will confirm if the business initiatives are in correlation to the risk management program.

As part of our risk management interview process, we look to confirm that your risk management approach supports your overall business objectives. As a business owner, CFO, Controller or HR Director, what keeps you up at night? If that concern happened, how would your income or cash flow be affected if there were unforeseen depletions of capital or a shutdown in the plant? A discussion on the qualitative aspects of your business provides the important details needed to solidify the most appropriate game plan to your endgame, price.

What is your viewpoint on risk? Are you/your company risk averse? Is your company in a financial position to take on more risk versus transferring that risk to another party or contractually to a carrier?

To help determine your risk aversion, it helps to assess your company history. For example, if you are a start-up company, cash flow and funds are typically tight, so you are more likely to be adverse to risk to protect the financial viability of your start-up organization.

Conversely, if your company has a 20+ year history, there are also risks, including becoming obsolete, stagnant, or too conservative with your business plan. Furthermore, we consider your industry, market position, and competition in positioning your risk management solution to the changing needs and direction of your business.

Quantitative analysis supports the qualitative interview. We look at the “hard numbers” and prior losses to identify trends in your performance. We also analyze losses to identify a variety of variables, such as:

• Average incurred costs per loss;
• Total incurred trends;
• Top loss drivers;
• Locations with high frequency issues;
• Fraud behaviors;
• Reporting lag time;
• Frequency vs. severity ratios; and
• OSHA recordable performance.

The results of our in-depth analysis will reveal opportunities to approach the critical areas driving your total cost of risk, price. We will isolate the root causes of these problematic areas and look to implement control measures to mitigate this exposure.

Implementation of Control Measures:

The opportunity spent on the identification of exposures directs us to apply our expert resources delivering the highest impact on your bottom line. Several control measures are designed from a pre-loss perspective.

An estimated 75 percent of commercial insurance expenses are claims driven. We look to control and reduce this percentage through pre- and post-loss control measures.

A comprehensive loss control evaluation points to strengths and weaknesses in loss control programs. One may have strong management leadership behind his or her initiatives but have no employee buy-in or participation. We can help you to establish a safety committee, delivering a comprehensive employee safety education campaign. Your business operations will determine the types of measures and approaches to take in addressing your exposures.

There are many post-loss or cost containment strategies. A proactive and effective Return to Work program is one strategy that positively affects your bottom line: offering a bank of modified duty jobs for employees and informing the doctor there is modified work available.

Also, establish a relationship with a local occupational medicine clinic. Interview them to learn about their services and tour their facilities. Invite the physicians into your business to get a first-hand look and understanding of your operations. By providing them with the details of your operations, they can accurately evaluate reported injuries to confirm if they are work related.

Fraudulent claim behavior can drive the cost of risk out of control. The National Insurance Crime Bureau often approaches insurance fraud rings between doctors, physicians and people. Whether it’s an auto accident or alleged workplace accident, send a clear message that fraud will not be tolerated.

Anti-fraud tactics include educating employees on the affects of insurance fraud through payroll stuffers and worksite posters, and offering safety incentives for solid performance. Also, keeping a motor vehicle accident kit in each one of your company vehicles, along with a disposable camera, allows you to document evidence, providing a stronger subrogation results.

An active Loss Control Program and post-loss procedures are key to cost containment. We are able to offer comprehensive resources to employ the most appropriate strategies for your business.

Risk Transfer/Financing:

Once we have identified exposures and created control measures, we can focus on the remaining exposures to transfer and/or finance. You will want to address questions such as: How much risk can you afford to assume in-house? How can we assist in contractually transferring that risk to a third party? Lastly, what portion of the exposures do we want to finance through an insurance policy?

Addressing these questions offers a direction as to how to approach the financing of your risk. Think about current cash flow needs. Are account receivables current? If there is a lag, how long is it, and are there resources to correct it?

Considerations involve self-insured retentions if you have a mature loss control program and the financial reserves to cover those shock losses that occur. Therefore, a combination of insurance and non-insurance strategies should be considered.

Manage Your Exposures:

It is estimated that 25 percent of businesses that sustain a major catastrophe are no longer in business within a year’s time. (Please read the previous sentence again – that’s staggering). If there is an interruption in your operations, are you prepared? We seek a long-term partnership with our clients to address the ongoing changes of exposures with your organization. Continual monitoring of the programs in place, as well as future business expansions, will dictate the course of your risk management program.

We highly recommend you:

Develop a Strategic Action Plan to put the needed control measures in place, including a Disaster Recovery Plan. This involves backing up your policies and procedures.

Offer consistent loss control policies and procedures to all divisions and departments within your organization.

Cost of Risk Resources:

To develop the most appropriate risk management program for your organization, we approach ‘insurance’ through a variety of insurance and non-insurance strategies, such as:

• Identification processes (qualitative and quantitative),
• Loss analysis tools to uncover exposures,
• Implementation of pre- or post-loss initiatives that address cost containment,
• Business continuation planning/disaster recovery,
• Risk financing options, retained losses or transferred, and
• Regulatory compliance issues.

We work with you to develop a strategic action plan, assist in the execution of the designed risk management program, and are committed to the monitoring and support of these initiatives.

If you are interested in reviewing your risk management strategies, contact us today.