It’s a hackneyed phrase that insurance is a necessary evil. That can’t be said about risk management. Actually, effective risk management enables your business to make better decisions, avoid the typical pitfalls and deliver on its plan. Isn’t that how we all want to manage our business?
A great analogy is Formula 1. People often think of this elite sport as a motor racing business. It’s actually a risk management business. The better you understand your risk environment, the better you can anticipate what’s coming around the next corner – and make informed decisions that will enable you to go faster, safely.
A good risk programme is a balance between three approaches: mitigating the inherent risks in your business by refining your processes, absorbing some element of risk and accepting it on your own balance sheet or transferring the risk to an insurer.
Getting the balance right will enable you to create the ideal risk programme for your business, which will then act as an enabler for growth.
What should this ideal risk programme include?
- People risk – many of the risks to business today relate to people. When was the last time you considered how your employees’ wellbeing, health and engagement related to your business performance?
- Key person – most businesses rely on a few individuals who are responsible delivering a disproportionate share of profit. When was the last time you did an audit of who the key people in your business are?
- Cyber risk – from ransomware and hacking to identity theft and electronic fraud – you now face potentially ruinous financial loss, litigation and reputational damage due to the sharp increase in cyber crime. When was the last time you reviewed your cyber security (or trained your team to be aware of these risks)?
- Operational risk – how confident are you that your current practices meet all the expectations of the HSE (Health and Safety Executive) and do not leave you exposed to employers’ liability claims? When was the last time you undertook a claims defensibility survey to understand your true exposure to liability-led claims?
- Under insurance risk – many property owners insure their building for the market value. But the value that matters for insurance is the rebuild cost. Do you know how long it would take and how much it would cost, including demolition and fees, to completely rebuild your commercial or residential property in the event of a loss?
- Credit risk – when was the last time you considered the balance between credit terms you offer to your clients and their ability to pay? By understanding their ability to pay better through a partnership with a credit insurer, you can optimise your credit risk profile and therefore profitable growth.
To what degree have you invested in your risk function?
How have you integrated it into your strategy? These can be complex areas to navigate, so obtaining the professional advice from your broker is your best course of action.
When was the last time you spoke at length to your insurance adviser about your business, where it’s going and what your plans are for the future? If they’re not asking you these questions, I’d question whether your broker really understands your needs.
Your broker shouldn’t be just looking at your last year’s insurance programme. They should be seeking to understand your business as a whole, to understand the wider risks in your business and the sector in which you operate, and how it’s changed and evolved over time. Then working in partnership with you, they should build a programme that is relevant to your business today.
Let’s face it: nobody likes surprises. When you know what you’re up against, you can seize opportunity that others with less insight can’t. You can make more informed decisions that ensure your business is resilient enough to bounce back from an unexpected bump in the road and continue to grow. After all, have you ever seen a Formula 1 Grand Prix when the drivers are on slicks in the rain?