Risk Management: Swimming With Insurance
Purchasing insurance is the same as stepping into a community swimming pool. Think about it. Your insurance carrier collects premiums and places them in a fund with millions of other premiums. These premiums create a reserve fund or pool of money. When there is a covered loss, the money pool pays out reimbursing a business for their loss. Risk management is the tool that decreases the chance of such losses happening.
“When a business files a claim with your insurance carrier, it’s the same as someone peeing in the community swimming pool. It affects everyone in the water.”
When the amount of covered losses rise, the cost to fund the reserve pool increases. Increases are passed through to policy holders as rate hikes on renewing premiums. Even if you have never filed a claim, claims from outside businesses can significantly effect your insurance cost. Risk management is the tool that separates your business from the crowd and helps insurance carriers “keep the water clean”.
5 Steps to Negotiating Premiums Through Risk Management
These 5 steps will give you insight on how to establish a risk management strategy in order to negotiate better premiums in the future.
1. Get a Broker, Not an Agent
Agents work for the insurance company, whereas brokers work for your organization. I believe the flexibility a broker brings to the table outweighs agents in strides. This is because brokers represent multiple insurance carriers whereas agents work for one.
If your broker represents Carrier A and Carrier B, they can make them compete against each other while negotiating terms. Carrier underwriters will often ask, “What other carriers are looking at this account?” This makes for great competition in the open market. When Carrier A and B find out about each other, demand for your business increases and gives way to price competition. When an agent’s carrier says, “This is the price and these are the terms”; chances for negotiation are bleak.
Brokers like myself may also offer risk management tools at no additional cost to your premium.
2. Identify Your Liability and Property Risks
Your business is unique and so are it’s risks. In order to identify risks it is important to work with internal and external experts. Experts are highly knowledgeable in your industry, your daily operations, and understand your points of hazard. Internal experts include yourself and employees while external experts can be insurance brokers / risk advisors, lawyers, CPS’s, business bankers, etc.
My average client has at least 6 insurance policies in place. I can say that as an advisor I truly understand their needs because there is not one cover all policy. In regards to assessing my clients risks, we typically start off with an industry specific questionnaire, followed by a facility tour, and a review of their current practices. Questionnaires may include questions about company finances, employee training, liability waivers, employee handbooks, etc.
When working with your team of experts look at everything from a questionable standpoint:
- How much interaction do we have with the public?
- How much will it cost to replace all of our equipment in the event of a total loss?
- Are we required to have a license?
- What governing bodies should we be aware of?
- Do we give professional advice?
These basic questions can help get the wheels turning in order to identify where your risk management plan should focus.
3. Brainstorm and Implement Risk Control Strategy
At this point, your team has identified your business’s major risks. This is great news! You only need to take a few more steps to start negotiating better premiums.
In this phase, your primary goal is to brainstorm the best ways to decrease your risks. Once you have identified the techniques you would like to use, now is the time to implement them. Some great risk control ideas may include:
- Have participants / visitors sign liability waivers
- Enroll employees in defensive driver training
- Issue employee hand books that go over vehicle use policies, discrimination, safety requirements, internet usage policies, etc.
- Installing sprinkler system to reduce the damage cause by a fire
These are a few strategies to give you ideas, but ultimately, your risk management plan should be unique to your organization.
4. Monitor Performance
The hard part is over. Now you can kickback and monitor the strengths and weaknesses of your risk management program. Monitoring results may show a decrease in claims or you might find that a specif area needs to be tweaked for improvement. Without monitoring you cannot move on to step number 5, which may be the most important step of all.
5. Reporting Success To Your Insurance Carrier
Your insurance carrier doesn’t know what you don’t tell them. Your broker is the communication link between you and the insurance realm. When your broker goes to an insurance carrier, they are doing something specific. They paint a picture telling your companies story. Brokers market your business to insurance carriers like directors market the next big blockbuster to film studios. On the other hand, your business can be denied coverage if the picture is not clear enough.
With a successful strategy in place, we now have enough ammo to negotiate better terms. If your current carrier decides not offer more in return, you now have the stability to approach the free market with strong expectations.
You’ll need to meet with your broker more than once a year during policy renewals. Report timelines do not need to be daily, but establish something that works well for your organization. For my clients, we typically meet quarterly to go over their performance. If your broker is not meeting with you on a scheduled basis to collect and discuss success, fire them! This means you are not getting the right value.
Risk management is not an overnight success. It takes thought, time, and effort to implement and utilize it’s tools. Risks are always evolving and no plan can truly cover every scenario. The idea is, with a successful strategy your workplace will be safer, your employees will be happier, and your will keep your business cash flow positive in the event of a loss.