How to Improve the Effectiveness of Your Insurance Risk Management Plan

by Todd Stein, President, Brunswick Companies

Managing Insurance Risk

If you’re in business, you’re taking risks. Every transaction involves an element of exposure, and one unexpected event can undo years of careful planning. A “Chief Risk Officer” ensures that your business is meeting this challenge.

Who functions as your company's "Chief Risk Officer"?

Just as your CEO, CFO and COO are responsible for your company’s executive, financial and operational functions, a Chief Risk Officer (CRO) is responsible for identifying and managing the risks your company faces.

Often, businesses depend upon their existing management team, working with their insurance agent, to execute this function. Many Fortune 1000 corporations have developed in-house insurance departments headed by a qualified insurance manager or “Chief Risk Officer” to identify risks and manage their insurance program. A third alternative is to outsource these duties to a professional insurance risk management company.

Defining Effective Insurance Risk Management

Much more than a once a year commodity purchase, effective insurance risk management is an on-going process of identifying new or changing risks. Your business does not stand still from one year to the next – and every change in your business should be analyzed to measure its potential impact to your exposures.

This responsibility extends far beyond the simple purchase of an insurance policy; in fact, an insurance policy is not always the best solution. Just as you take care in evaluating the level of service and expertise available from your financial, legal or medical advisers, you should evaluate your insurance adviser’s acumen in managing the risks particular to your business.

The questions below are designed to help you make this determination:

• Does Your Insurance Adviser Perform a Risk Management Audit? Lower risk exposure should be a consideration, as well as lower cost of insurance. 

  Too often, insurance agents ask a few routine questions and then shop your existing policies for the best price. An effective CRO will conduct a thorough “risk management audit” on a regular basis to uncover hidden exposures and identify opportunities for reducing or transferring risk.
  
  Become Proactive:
  
  

  • Does your CRO ensure that your insurance carriers are receiving the proper information to accurately evaluate and price your risk? Failing to advise your carriers of any new ventures or entities, and any changes in general operations, could negatively impact your coverage.
    
    
  • Are major leases, contracts and corporate agreements reviewed for liabilities and responsibilities that should be avoided or insured, for unacceptable contingency provisions that should be renegotiated, and for opportunities to transfer risk?
    
    In your effort to reduce insurance rates, avoid negatively impacting protection. Don’t wait for a catastrophic event to find out that your insurance carrier will cover only a percentage of your losses. For example, your business interruption coverage is only as effective as the figures provided to your insurance carrier, which are the basis for determining the limits to insure. If your loss values are based on erroneous assumptions, you could be putting your business in jeopardy.

Your CRO should prepare an objective evaluation of the assumptions on which loss of income values are predicated, and review your records to ensure you have adequate proof of loss. In addition, your CRO should ensure the methods being used to determine property and equipment values coordinate with the contract language in your insurance policies. 

• An Effective Insurance Consultant Improves the Insurance Planning Process.

   Move beyond comparing the premiums and deductibles for each policy.
   
  

  • Does your CRO analyze your loss history to identify opportunities for cost savings through claims management and/or self-insurance, as well as opportunities to transfer risk? Preventing claims before they occur is the best way to control insurance costs.
    
    
  • Does your CRO provide an easy-to-understand overview to your management team, detailing which exposures have been considered before your insurance policies are put out to bid? A thorough review provides an accurate estimate of maximum foreseeable losses. Comparing your current coverage against a comprehensive checklist allows your management team to make informed decisions about the ideal levels of coverage to accomplish your business objectives.

Tips for Selecting an Insurance Risk Management Adviser:

• Utilizes a Request for Proposal (RFP) Process to Obtain Optimal Coverage

  Your CRO should assess each risk and recommend a strategy for its elimination or management.  He should be able to advise you on a wide array of risk transfer, risk acceptance and risk avoidance strategies, such as:
  
  

  • Developing customized insurance specifications to provide maximum protection for the risks faced by your particular business.
    
    
  • Analyzing your claims history to identify ways to lower your insurance cost such as:
    
    
    • Reducing premiums through partial self-insurance
      
    • Minimizing losses through workers’ compensation, liability and property & casualty claims management services

  This will allow your CRO to develop an RFP that is specific to your company’s coverage needs.  By soliciting bids on a customized insurance program, your company can maximize the efficiency of your risk-management costs.

  An effective CRO will administer the bidding process, summarize each carrier’s proposal, and provide your management team with a clear evaluation to streamline the decision-making process.
  

• Consider Outsourcing for an Objective Insurance Risk Management Evaluation.

  Given the importance of managing and mitigating risk in your business, it would be prudent to assess whether your company is receiving optimal protection. Consider consulting with an outsourced insurance risk management adviser to obtain an objective evaluation of your current risk management program.