business insurance

Break The Bottlenecks With Business Insurance

The Harvard Business Review recently published an article titled “Break Your Industry’s Bottlenecks”. The concept being that to create a successful business “you have to break the rules and overturn the received wisdom about how things work.”

This could not be truer when it comes to the purchase of business insurance, which is a bottleneck for businesses and has been done the same old way since the Stone Age.

Two important items stood out:

When business as usual is set aside it significantly reduces cost, and

Outdated purchase is one of the five types of bottlenecks mentioned in the article

Premier Risk Management has also found these two items to be true. Too often the executive responsible for insurance has many responsibilities and business as usual is easy. Resource constraints force executives to stay the course, in turn abandoning meaningful savings opportunities. Companies often assume their broker is the only resource necessary. The executive has done it this way since he/she started in business, did it this way in their old company and this way in their new company. We can’t forget… they have been with the same broker for over 10 years.

Challenge the Business Insurance Status Quo

When companies and executives challenge conventional methods they will benefit and discover what they didn’t know … competition is a healthy alternative! Outsourced Risk Management helps remove the frustration and is an innovative way to provide expertise not otherwise available.

The Risk You Don’t Know Can Hurt Your Biz

Tom Bullen speaks on behalf of Premier Risk Management now part of the risk advisory arm of AETHOS Consulting Group in the Jennings Wire podcast.

Tom Bullen is with Premier Risk Management, the risk management advisory arm of AETHOS Consulting Group, a hospitality focused executive search and human capital services firm. AETHOS speaks with hospitality companies around the world and hears the concerns of CEOs and leadership, and the question of risk is always top of their minds.

Listen to the podcast here!

Business Insurance & Managing Risk: You Don’t Know What You Don’t Know

What I do know is that it is hard to admit that you don’t know what you don’t know. Recently I gave a presentation at the 2015 Business Law & Corporate Counsel Symposium. The presentation was about business insurance and managing risk for businesses, the real message I wanted to leave my audience was that CEO’s, CFO’s and their advisors, like attorneys need to “know what they don’t know” and seek out an impartial expert to look out for their best interests.

How Well Do You Understand Your Business Insurance?

Over the years – I have heard so many people say “I didn’t know that”, “No one ever explained that to me” or “I really didn’t understand that”. It is all too common that people don’t fully understand the insurance products and services they have been sold.

So much focus is placed on the premium (cost of the policy) that the recovery aspect is overlooked and therefore not understood. When purchasing an insurance product you should understand how you will be indemnified should a loss occur (paid for your loss and returned to the condition you were in before the loss, no worse no better).

The exposures businesses face in the world are vast, complicated and dynamic. Insurance is only one of the avenues to address and transfer risk, but that too is complex and dynamic. There are many moving parts to coordinate to ensure a company is properly protected.

Here is a startling statistic: 75% of businesses that suffer a catastrophic loss go out of business within two years of their loss. I can promise that the reality and root cause of most companies’ problems who suffer these catastrophic events is that:

They didn’t “know what they didn’t know” about insurance and their coverage, and
They were SOLD insurance rather than purchased it – and there is a BIG difference

A number of attorneys at the symposium voiced their agreement and shared experiences regarding the misunderstanding of an insurance contract.. They valued the insight an impartial consultant can provide. That says a lot right there.

Be in the know! Seek out assistance to understand what you don’t know – it will pay off in the long run.

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.

Contact us for a FREE consultation >>>

The 5 Forces That Shape Industry Competition

As a person that considers himself an endless student of business, I was searching the Internet and thus came across a Harvard Business Review article written by Michael E. Porter, The Five Forces That Shape Industry Competition. This article is not only a good read but reminds me of the importance of getting back to the basics.

The Five Forces described in the article are basic concepts that apply to all industry groups. When reading the article one can see how appropriate these strategies are from the perspective of the insurance industry … to be honest they also shape Premier’s business model.

Without a doubt we can benefit from the study by understanding the guidelines that Porter details in the article. Porter stresses the importance of “awareness”… and that a business that is aware of the “five forces” will be better suited to understand the structure of its industry and can create a position for itself that is more profitable and less vulnerable to attack. Aligned with the message of the article, our business model is shaped by the understanding of competition and other risk management philosophies. It is important to have an educated point of view and an advocate for insurance matters!

All businesses are buyers of insurance products that protect their company. When you refer to Porter’s chart – if you are the buyer then you must ask yourself – who is the supplier?

If you said the supplier is the insurance carrier, then this is exactly what the insurance industry wants … overlooking the Broker as the true supplier.

How does a supplier gain bargaining power? Reducing competition and creating so called expanded services to make it harder for customers to leave.
How do you gain bargaining power as the buyer? By being a savvy buyer and forcing down prices by playing rivals against one another.
If you said the supplier is the Broker then what is your strategy for managing the procurement process? Do you internally have the skill set to understand and interpret factors such as market intelligence and product knowledge?

Remember the insurance carriers are experts when it comes to their products … are you?

Too often businesses as the buyer look at the insurance carriers as the Supplier. If you really think about it the Broker is the supplier and what the insurance carrier provides is the product.

So why, when it comes to insurance procurement do buyers not create competition at the supplier level? Remember, suppliers gain power by reducing competition. It truly comes down to being a savvy buyer. The real dilemma here is that buyers don’t know that there is in fact a niche business of insurance advisers or the “substitute” as identified in this article that can help shape competition.

Porter’s article would suggest that you can reshape the forces in your favor by using tactics designed specifically to reduce the share of profits (premium) leaking to other players. An example; neutralize supplier power by standardization, or as we would say “you can’t standardize it unless you understand it” thus making it easier to vet out your vendors.

The journey is not a straightforward path but one that is complicated and though it is sometimes considered a necessary evil – insurance matters.

The Life of an Insurance Policy

A few weeks ago I participated in a panel discussion regarding insurance issues. The first part of the discussion was to center around “the life of an insurance policy” – I thought to myself what exactly is the life of an insurance policy and trying to have a little fun with it, I came up with this poem. I am sure many of you can relate.

The Life of an Insurance Policy

Mine is somewhat of a lonely life.

I am born from an insurance company to satisfy a need,

a need for peace of mind and financial protection against many worldly risks.

I am courted by, and eventually partner with, individual consumers and businesses alike.

The way I get matched up is sort of like a blind date, if I look good on the outside then I can’t be too bad on the inside

Once I am with my new-found customer I sit on a shelf, stuck in a file cabinet or I’m in a PDF file somewhere…

No one touches me, reads me, caresses me or understands me – a lonely life

But they know I’m there…somewhere…

Ah, but when there is a loss and claim – that’s when the fun begins.

Then I have so many friends…claims adjusters, agents, attorneys

Everyone is interested in what I have to say…they want to understand me better.

I feel fulfilled – everybody’s reading me when there is a loss, even fighting over me – I’m feeling loved.

Although, sometimes people get mad with me…I didn’t provide what they thought they had

And to them I say…you really didn’t get to know me, with all of the good and all of my flaws.

All I wanted in life was a little peace, love and understanding.

R. Scott Wolff, CIC, CRIS

Are You Playing Russian Roulette With The Insurance Related Provisions of Your Everyday Business Contracts?

Many times company leadership does not put much thought to the importance of reviewing the insurance related provisions of their business contracts, but if there is a single message I want to make clear in this post, it is that mitigation of risk is essential.

It is difficult to express in dollar value the importance of contract reviews especially given that you truly don’t know what has actually been saved if a problem or risk was mitigated ahead of time … which is the point of risk management. Unfortunately, and too often business leaders don’t see the value either and just let it go. In reality, it is like playing Russian roulette … it is not if, but when.

Here is a perfect example:

Recently a company was doing some capital improvements and adding a building extension. It was a 3 million dollar project where the contractor presented a “standard form” contract agreement for the project. Standard for who? The word “standard” should raise a red flag and can get you every time. You think, they are a large contractor they know what they are doing. That is exactly right, they know what they are doing … protecting themselves.

Needless to say, there was an accident. A subcontractor hit a sprinkler-head which caused water damage not only to the new construction but to the existing building. The section of the contract relating to indemnification and insurance was written poorly for this particular project and the owner was left holding the bag on $100,000 in repair cost.

Are the following words just a bunch of “mumbo jumbo” or do you understand how they work within the various provisions of your business contracts – additional insured, pollution liability, waiver of subrogation, and indemnification? Also important, will these contracts make insurance policies between the business parties respond appropriately?

Your turn to pull the trigger …

Approaches to Risk Management: Part 3 Enterprise Risk Management (ERM)

In parts 1 (The Basic Concepts) & 2 (Digging Deeper) we gave you the “traditional silo” approach to risk management. Another school of thought we would like to share is ERM – Enterprise Risk Management.

ERM is a framework to identify risk that typically involves identifying particular events or circumstances relevant to the organizations objectives (risk and opportunities) …assessing them in terms of likelihood and magnitude of impact …determining a response strategy …and monitoring progress.

Some of the primary risk functions (departments and committees) in larger organizations that may participate in an ERM program typically include:

Strategic Planning – it identifies both external threats and competitive opportunities, along with strategic initiatives to address them.
Compliance & Ethics – monitors compliance with code of conduct and directs fraud investigations.
Operations Management – ensures the business runs day-to day and that related barriers are surfaced for resolution.
Accounting /Finance Compliance – directs the Sarbanes-Oxley Section 302 and 404 assessments, which identifies financial reporting risks.
Insurance – ensures the proper insurance coverage for the organization
Marketing – understands the target customer to ensure product/service alignment with customer requirements
Treasury – ensures cash is sufficient to meet business needs, while management risk related to commodity pricing or foreign exchange.
Law Department – manages litigation and analyzes emerging legal trends that may impact the organization.
Operational Quality Assurance – verifies operational output is within tolerances.
Credit – ensures any credit provided to customers is appropriate to their ability to pay.
Customer Service – ensures customer complaints are handled promptly and root causes are reported to operations for resolution.
Internal Audit – evaluates the effectiveness of each of the above risk functions and recommends improvement.

Each department of the management team then selects a risk-response strategy for specific risks identified and analyzed, these may include:

Avoidance: Exiting the activities giving rise to risk
Reduction: Taking action to reduce the likelihood or impact related to the risk
Share or insure: Transferring or sharing a portion of the risk, to reduce it
Accept: No action is taken, due to a cost/benefit decision

Each approach described in this blog post series – “Traditional Silo” and the ERM Model – has its advantages and disadvantages. Each approach, utilized separately, is not fully valid as a comprehensive stand-alone approach.

Every business large or small faces many of the same issues just in different ways and varying degrees. A melded strategy will position company principals to investigate both internal and external risks that can and will affect their business at some point in time. The bottom line is that a well thought out strategy needs to be developed touching upon a wide variety of an organizations business operational issues. Another point to keep in mind is that risk management is an ongoing process…the risks we face today may not necessarily be the ones we face in the future.

Approaches to Risk Management: Part 2 Digging Deeper

In part one of this series, Approaches to Risk Management: The Basic Concepts, we recommended you analyze your business risk management program from 7 major aspects. Beyond these basic concepts, some academic authorities suggest the following as necessary considerations in the development of a formal Risk Management Process as well.

Assets & Exposures – it all starts here. What exactly are your company’s risks and exposures? Look at everything and think outside of the box.

Measure the Risks – qualitative and quantitative analysis for severity – probably loss and estimated maximum financial loss from each occurrence and for frequency – probability of loss occurring. Be in a position to identify problem areas…this is only possible if you have devised a way to analyze your loss information.

Control the Risks – both before loss and after loss. Be in position to limit or mitigate exposures via loss control methods before the loss occurs…that way anything that falls through the cracks can be addressed as part of the post loss evaluation to limit repeat occurrences.

Finance the Risks – how are losses to be paid for? Transfer it to an insurance company or to your balance sheet? Think about it.

Risk Administration and Communication – this involves the implementation and monitoring of the risk management program. Who is going to be assigned to oversee this?

There are many sub-components to each of the categories, which can be considered after these fundamental issues have been evaluated. This subject matter is complex. There are many “moving parts”. Below are a few select areas that certainly rank high for additional review and deeper digging.

Operational Risks – Manufacturing, sales, labor, supply lines, distribution lines, shipping, storage, inventory, advertising, internet and web site usage and disposal of waste to name a few.
Exposure to Business Income Interruption – It is all about the potential for the flow of income being interrupted. Every business has its own unique exposure based on the way they individually conduct business. The question becomes, how can those operations become interrupted? Important point – it’s not just your business but it is those businesses that you rely on to sell to or to receive goods from in order for you to continue your business process.
Physical Risks – these are the risks you face when you own, lease or rent property. What are the exposures that are faced under each scenario?
Financial Risk – Here you are considering such things as cash flow, financial markets, credit risk, lending, liquidity and being over-leveraged or under-leveraged. These issues all play a part in determining how a proper risk management program should be set up.

The important point to illustrate here is that there is a process to be followed and to give you something to think about. As you can see, there is more to it than getting renewal policies and putting them up on a shelf. What was discussed in this and the previous blog is referred to as the traditional “silo” approach to risk management. In our next blog, we will look at another approach to risk management…Enterprise Risk Management (RM).

The Bold Truth About Risk Assessment

Risk Management by definition is the practice of protecting an organization from financial harm by identifying, analyzing, and controlling risk at the lowest possible cost.

This is a very blunt definition that should be top of mind when discussing the purchase of an insurance product or discussing other risk management techniques. The challenge is to think about ways in which to reduce costs, properly communicate the pros and cons of each choice and arrive at the proper solutions that will best protect the organization.

Now add to that definition ACTIVE identification, evaluation and management of all potential hazards and exposures to loss that a company may experience. It is absolutely essential that you keep informed about things going on around you — locally, nationally, and internationally — that bristle with the potential to affect your business/organization in an adverse way. Once you recognize a certain “exposure”, you must act on it one way or the other. And, obviously, one of the “act on it” steps may be classic insurance.

And finally this process should be CONTINUOUS. It’s not appropriate to establish or simply renew your insurance program and then put it up on the shelf until next year. Risk management is a constant practice that begins even before a policy is written and does not really end at all. It is a work in progress where you continually look to improve coverage, terms, conditions, claims reporting/handling, loss control/mitigation, exposure analysis/identification and the like, year after year.

Protecting your organization from financial harm is the #1 goal. Doing that, at the least possible cost, is admirable (but not practical) – you must be actively involved in recognizing potential exposures and hazards on a continuing basis throughout the year.

Jump in with both feet and ask, “How can we improve our risk management program today and tomorrow and beyond?” That’s a question you should consistently consider.