Risk Tips

Risk Tip: Pay more attention to loss control

Being proactive means savings in the long run.

Comment: Risk management is all about reducing and mitigating the exposure to risk which in turn reduces costs. Unfortunately we see many companies who do not focus on loss control measures until it is too late. An employee is injured, a fire occurs, an invitee trips and falls. Most of the time with smaller to medium-sized companies it is the insurance carrier loss control representatives who point out potential hazards.

Bottom Line: Over time, by becoming more proactive in your approach to loss control it 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. Insurance company underwriters will look favorably on this and will be better able to justify rate reductions on your account. This is an area of focus where it cannot be “business as usual.” Risk and exposures change constantly and must be addressed in the same fashion.

Risk Tip: Ensure proper notification is stated clearly in your policies

The “notice” provision in all insurance policies should be modified to mean notice to a “specific individual”.

Comment: Here is another one of those “missed” clauses. How many times have you heard a client say “I never received the notice”?

Just recently a prospect was explaining to me that they received a letter from a law firm placing them on notice of a potential claim. “Someone” at the front desk apparently signed for the letter but it never reached the person in charge of handling the insurance. A second request was received but months later, which was finally forwarded to the insurance carrier. Unfortunately, the second letter placing the insurance carrier on notice was submitted after the expiration of the prospect’s claims made policy. The insurance company held their position that they would not defend on the basis of late notice because the first letter the plaintiff’s attorney sent was in fact signed for by the insured and they should have placed the carrier on notice at that time. Obviously this was a big problem. One way to avert that from happening is to have the insurance policy state that proper notice/knowledge of claim must go to a specific person before the clock starts ticking.

Another clause to be aware of is the “Time for Suit” language and time frame. This clause places a time constraint on when an insured can bring suit against the insurance carrier; typically it is a one year time period. Here to an insured must be aware of these provisions while thinking through various claim recovery scenarios. While suing the insurance carrier is a “last resort” action, important time parameters such as these must be acknowledged and working into any loss recovery strategy.

Bottom Line: The insurance company knows what every single word of the contract means and how various clauses will work at the time of a loss or claim – make certain that you know how your policies will work in the event of a claim or loss.

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Risk Tip: Review insurance policies for consistency

Insurance policy provisions should be uniform as to named insured, notice and cancellation clauses, territory, etc.

Comment: All too often when reviewing policies we find that named insured’s do not match up from one policy to the next, notice and cancellation clauses are not uniform and on and on. We have reviewed thousands of policies and see this all the time. Unfortunately these may go unnoticed until a claim occurs. That’s when the heartache begins. You receive a letter denying or disclaiming coverage – now what?

Bottom Line: The insurance company will go by exactly what is contained in the insurance contract. Arguing intentions with an insurance carrier never really works out too well and can be very costly. If there is more than one entity, make sure they are listed or your contract contains omnibus wording. All notice and territory clauses should be uniform throughout each policy. If any of these clauses do not match up then severe coverage issues may result. Take the time to address it.

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Risk Tip: Strategy to identifying business interruption exposures

Use flow charts to identify sole source suppliers or other contingent business interruption exposures

Comment: Assessing business income exposures is not always easy. So consider how helpful it would be to draw a map or create a chart of how goods and services flow. That way you can visualize your supply chain. Ask yourself, what in the chain could cause an interruption? If there were an interruption in that chain how long could it last? What would be the worst case scenario? What if there is no physical loss to the building? How much coverage is enough? Is there a plan to replace the flow if the original gets interrupted? Sometimes simple solutions can mitigate big exposures, but it all starts with asking the right questions and an assessment of your situation.

Bottom Line: Business Interruption Insurance is to a business as Disability Insurance is to us personally. If we get sick and are unable to work there is a good chance that our income will stop and our households will suffer. Same thing with a business, if it suffers a loss (gets sick) there is a good chance that the businesses income will be affected and the business will suffer — to the point were it may not survive. Spend the time to review your organizations exposures.

Risk Tip: 2 important tenets of risk management

Don’t risk more than you can afford to lose…& don’t risk a lot for a little.

Comment: These two are both basics – the first refers to the idea that if you don’t have enough money to pay for the exposure to loss (risk) out of your pocket/balance sheet, then insure for the risk, transfer the risk or avoid the risk. This becomes the client’s comfort level with the risk at hand. Some companies are very comfortable with risk – they plan for it and manage it. Some companies are very uncomfortable with risk and want to chance nothing.

The second has to do with the fact that a business organization can protect vast fortunes and assets for a relatively small amount of money, comparatively speaking. That would be the prudent move for any business owner.

Bottom line: Everyday and in just about everything we do we are faced with risk. Sometimes we choose to take the risk – sometimes we are a little more conservative. No matter how big or how small the business, we all must make choices relative to appropriate risk tolerance for that business. Therefore we must know what those risks are and what the choices and alternatives are to better protect the business organization.

Risk Tip: How to tailor a risk management program

An organization’s risk management (insurance) program must be tailored to its overall objectives and should change when those objectives change.

Comment: An insurance broker/advisor cannot recommend insurance products and services without knowing what the client actually does, how they do it and what is important to them with regard to their insurance program. Once it is known what they do, how they do it and what their objectives are they can be better advised in terms of coverage and exposure to risk. However, many times this step in the risk management process is overlooked or not addressed in the detail that it should be. Unfortunately, in the haste to sell product coverage issues, exposures are often missed. In addition, every business is a moving target, in that, it is constantly changing and/or the business environment around them is changing. To further that thought, brokers/advisors have to continually keep in touch with their clients in order to find out where they are taking their businesses and how they intend to go about it.

Have operations changed?
Are any mergers or acquisitions on the horizon?
Has there been a bump in the number of employees?
Are there any new tenants that may create an increased hazard?

By paying close attention to the client’s business operations and understanding their objectives, a true risk management program can then be developed and managed. Over time this will serve to limit their exposure to new risks and thus save money.

Bottom line: Have a detailed risk analysis performed of the business exposures you face along with a review of your business plan. Then develop a plan to address those exposures.