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BY LISA WINCHESTER

A solid insurance strategy is comprised of more than insurance alone. In order to fully protect your business from unexpected losses and reduce

overall risk cost, you must have a comprehensive risk management strategy in place.

In this context, risk is the chance that an event that negatively impacts your organization’s financial health will occur. An effective risk management strategy thoroughly identifies organizational risk, assesses and controls its impacts, and has a plan for how the organization will pay for a loss event. There are five basic steps.

1. Identification

This is the most important step to establish your insurance and risk management strategy. Risk first must be recognized before it can be effectively assessed, prevented and funded. Risk identification requires an intimate knowledge of the organization’s products, services and critical resources, as well as the cultural, political and legal environment in which it lives.

The general categories of risk are property, liability, human and income. Property risks include buildings, furniture, tenant improvements, computers, equipment and other tangible property. Liability risks arise from an obligation or duty owed to others under tort law, criminal law, or federal or state regulations. Human risk is injury, disease or death to the workforce. And lastly, income risk is loss to revenue and profits. Risk comes from both internal and external factors, including employees, products, procedures, customers, regulations, natural disasters and the economy.

The best resource for risk identification is the company’s management team and employees. Other resources are industry associations and a risk manager or broker. A physical workplace inspection should be conducted and operational flow chart(s), industry

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checklists, contract terms, policies and procedures, financial statements, compliance reports and audits, current insurance policies, and past loss experience should be reviewed.

2. Analysis

The next step is to assess the likelihood of the risk event and its financial impacts, which aids in risk prioritization. Once prioritized, it is easy to justify where to spend risk control resources, determine what risks to self-fund and support insurance buying decisions.

Risk measurements, or impact, can be as categorized as high, medium or low by taking specific impacts on finances, organizational strategy and operations into consideration, as well as stakeholder concerns. The same is true for likelihood.

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S T R A T E G I E S

Article reprinted from Spring 2018

Insurance Strategies

Risk Management: It’s More than Insurance

Severity of Impact /Consequences

Minor Moderate Major

Frequent Medium High High

Likely Low Medium High

Remote Insignificant Low Medium

Prob

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3. Control

Any decision or action that reduces the likelihood, frequency, severity or even the unpredictability of loss is risk control. Occupational injuries can be prevented by assessing workflows and processes to identify opportunities for failures and human errors, followed by employee training to avoid theses failures. Contract risk can be transferred using indemnification and insurance requirements. These efforts not only reduce and prevent losses but also have an effect on availability and affordability of insurance.

4. Financing

Accidents happen. Is the organization able to pay for legal expense, compensable or punitive damages, fines, penalties, medical expenses, replacement of property, etc.? Insurance is one way to fund losses. Non-insurance methods to finance a loss include self-funding and borrowing external funds. These are needed when the availability or cost of insurance is prohibitive. They are recommended when the organization can accurately predict losses, there is effective risk control, and the

organization has adequate financial means to fund its own losses.

5. Administration

Decisions need to be made on how to treat and fund each risk. Add your risk control and funding methods to your risk matrix to illustrate and communicate risk strategies. The matrix and the risk management process is fluid and should be updated regularly with recommendations that improve the overall treatment of risk.

Insurance alone cannot protect your organization; insurance buying decisions are best made in collaboration with a risk management strategy. The foresight gained by developing a proactive risk management strategy to prevent, mitigate and pay for losses could very well make the difference in the vitality and long-term health of your organization.

LISA WINCHESTERCBIZ Insurance Services, Inc.Columbia, MD443.259.3285 • lwinchester@cbiz.com