Commercial Insurance Blog

Thinking Like a Risk Manager

Reducing the cost of risk to a business isn’t just about lowering insurance costs, though they are the biggest identifiable budget item. Lowering insurance costs will usually follow when using some of these non-insurance strategies. The purpose of this article is to identify and organize business risks so the owner can take steps to reduce the overall cost of risk. We also highlight some of the professionals we network with, as they contributed to this article (and contribute to our success with great advice).  

To reduce the overall cost of risk you should:

• identify it (we'll note some common ones here)
• control it (we've identified many competent partners here)
• finance it or transfer it (insurance)
• monitor it periodically as you would any strategic plan

Sounds like a lot, but read through some of the ideas listed here and you'll begin to think like a risk manager, too.  We’ve broken sections down into commonly used classifications taught by the Certified Risk Manager Program used by most risk professionals:

Property: Recognize the importance and function of your work space and all that supports your operations

• Know the value of your property and how and where to replace it if the unexpected strikes.  An off-site list of vendors who can react quickly to needs is always a good idea.
• Premises alarms for burglary and fire protection provide the fastest response time when something does go wrong.  Response time might make the difference between reopening next week or next year.
• Take steps to protect your property when weather is expected to be bad - ahead of a hurricane, big snow storm, or other known weather event.
• Engage a competent IT partner to protect your data from disk failure (mirror drives and off-site backup / restore), hack attacks (regularly test firewalls and update virus protection), and communications fail (load sharing / redundancy from providers).  We network heavily and can refer many competent IT administrators, including cloud consultants.
• Have a disaster plan (see our easy tips on creating one quickly) and make it accessible to all management so that when something really bad happens you can react confidently and in an organized fashion.

 Human resources:  Understand employees as your greatest assets, and potentially greatest liabilities

• Screen for the job.  Regulations are strict in Massachusetts, so always engage a professional partner. We use Safer Places.
• Document your searches, hires, reviews, and especially preparation for termination (we can recommend attorneys who specialize in labor law).
• Get the most out of your employees, and keep them invested in the business (consider the services of a business coach who can help manage  and motivate employees if it isn't your core competency).
• Document regulatory compliance (e.g.: CMR-17 if you hold customer data) and consider outsourcing Human Resources compliance.
• Social Media policy – have clear do’s and don’ts that your employees follow. Consider "business" and "personal" Facebook personas to separate on- and off-duty activity. 
• Plan for loss of partner, rainmaker, owner from death or disability. Contact us regarding life and disability insurance; we handle many cases here and bring in specialists whenever needed.

Liability: Consider your "product" from a trial lawyer’s perspective

• Professional – know your limitations; collect Insurance Certificates from subcontractors to document that they’re insured and it's okay for you to be added as Additional Insured.”
• Premises – recognize a “hazard.”  Use incident reports for near accidents. These will help you recognize trends and take steps to avoid problems down the road.
• Products– over-engineer for safety; engage qualified professionals for work under your brand.
• Acts of Employees – such as accounting systems...collecting and submitting adequate sales tax (engage a qualified CPA firm).

Net income: pay attention to risks that directly affect finances

• Quantify costs of goods sold, and gross and net profits (am I making money?). Get assistance from experts.
• Audit your bookkeeper from time to time. The bookkeeper is the closest person to the lifeblood of your business: the money.
• Consider steps to take if a physical location was rendered unfit, and have a commercial leasing agent who knows the market and can get you and your employees back to work in new space right away.
• Know the value of your business and begin planning your exit strategy if less than 10 years out.  

Organizing risks into these categories, (Property, Human Resources, Liability, and Net income) will help you identify where potent exosures are. Once identified, you can make better informed decisions on whether to manage, transfer, or accept these risks. Being informed is the first step.

Click below to watch a short video Geoff Gordon made for BusinessTown on this topic.

Please call one of the Gordon Atlantic Insurance professionals toll free to discuss your own risk exposures at (800) 649-2262.  Prefer to type versus talk?  Click below!