A Guide to Identify Risk
NOW THAT YOU HAVE IDENTIFIED YOUR RISKS - CAN THEY BE AVOIDED, REDUCED OR INSURED?
This article was originally authored by TrueNorth Specialist, Rusty Magner and featured in the Business Owners & Executives section of www.financialpoise.com.
Safeguard your business with a solid risk management plan
All business entities face risk. Some aspects are insurable, while some are not. But just because it is insurable, does that mean you should buy insurance? Organizations today are transitioning from simply purchasing insurance to establishing a full risk management plan.
The four types of risk
Kona Advisors’ managing director, Bruce Werner’s recent article, “Creating a Risk Management System,” suggests a thorough review of potential risks to establish a risk management plan that is within the entity’s tolerance.
Businesses face four types of risk:
• Strategic • Financial
• Operational • Hazard
Challenges in strategic, operational and financial risks caused the largest drops in shareholder value among Fortune 500 companies over five years, according to a recent Deloitte study. Hazard risk can be protected by insurance, and this study showed that it worked as planned. Leading organizations regularly review all four types of risk.
The quadrant method: avoid, reduce, retain, insure
The world of risk is wide and broad, spanning every industry and line of business. Today, successful business leaders are not simply buying an insurance product. They are relying on a trusted resource to assist in mitigating their risk. They are looking for a systemized process to confront and manage risk, as well as an advocate to work alongside the people they have appointed.
Options should be presented and reviewed that will ensure appointees buy as little insurance as possible. How is this done? Together, with your advisor, work to label and classify threats into one of four quadrants.
Once this is accomplished, go to work on your risk management plan and put focus on avoiding and/or reducing exposure that is frequent or costly. Then, work to manage claims that can be anticipated but do not have a large impact.
Proactive leaders manage risk smarter
Threats to business are changing in today’s world. Some private or family businesses do not have the resources to manage these risks alone. Therefore, it is critical that the business owner partners with an experienced broker or advisor with the resources to help manage or mitigate their risks. The discussion should be structured around confronting the cause of loss rather than simply addressing its effect.
Identify. Prioritize. Measure. Manage. It sounds logical, but the words become obscure and subjective without a strategic process that reflects your industry’s unique risks. No two industries have the same risk profile, so choose an advisor with a wide scope of specialties who can anticipate your unique needs.
An enterprise-wide risk management plan will evaluate and avert threats from four distinct zones:
• People • Compliance
• Operations & Structure • Risk Transfer Strategies
Notice that we include people in our process—every organization needs them! What are you doing to attract and retain the best employees? Is your benefits program helping or hurting you? Are your year-round benefits communications effective? Have you looked at alternative risk financing for your medical plan with strategies to decrease claims?
The most common example is medical insurance. Too often, business leaders do not have enough data on their medical spend to make thoughtful long-term decisions. Instead, they are buying insurance year-to-year and hoping it will be better next year. Hope is not a strategy.
Be sure you and your advisor are doing everything possible to identify the risks in your business and strategize on how to address each with a multi-year plan. The goal is to buy less insurance and compress costs. Insurance helps to manage hazard risks, but strategic, operational and financial risk need strong management processes to control.
Creating a risk management system
The value killers revisited – a risk management study
This publication has been prepared by TrueNorth Companies, L.C.’s Employee Benefits division and is intended for informational purposes only. Transmission of this publication is not intended to create, and receipt does not constitute, a client relationship with TrueNorth Companies, L.C. This publication does not constitute any type of representation or warranty, and does not constitute, and should not be relied upon as, legal advice. This publication is not a contract and does not amend, modify or change any insurance policy you may have with an insurance carrier. © 2019 TrueNorth Companies, L.C. All rights reserved.
TrueNorth is the largest insurance and financial services firm of its kind based in Eastern Iowa. Today, our dedicated staff consists of over 350 colleagues and is organized so each becomes a specialist in their respective practice areas. This collaboration offers our clients a coordinated approach to risk management, insurance services and financial strategies.
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