The Wall Street Journal recently reported that fewer than 20 percent of executives say their companies are effectively managing risk. Companies often have a process in place to identify and monitor risks, but fall short when it comes to implementing practices to manage those risks as part of the overall strategic plan. There can be a number of reasons for this shortcoming, including not having a dedicated internal risk management department or lack of qualified risk management professionals in the existing talent pool. As a result, companies that fall into the 80 percent need to begin to develop a sound risk management program as the company could be exposed to risk that could be detrimental to not only the bottom line, but also to its reputation.
The scope of work for risk management includes not only the procurement of insurance, but also developing and implementing procedures that will help to achieve the goal of minimizing the company's total cost of risk (TCoR). The available strategies to help achieve this result are numerous. While the risk management function varies, in some degree depending on the complexity of a company's operations, we believe there are fundamental aspects that need to be included in any risk management program. These include:
- Identification and analysis of business exposures that could result in a financial loss for a company
- Analysis of the administration of the risk management function including the identification of a risk management workgroup, identification of procedures in place and development of an intranet site that can be available to employees
- Special projects related to property and liability insurance including collateral reviews and claim reviews
- Securing and reviewing property and liability insurance proposals and developing insurance specifications for future coverage placements
- Review of insurance policies, binders and broker proposals to ensure consistency and accuracy of insurance programs along with broadening coverage to transfer more risk from the company
- Analysis of the impact changes in properties and operations has on a company’s TCoR
- Monitoring changes in insurance coverages, terms, costs or insurers’ financial ratings and evaluating their impact
- Collaboration with attorneys and other professionals in preparing and analyzing agreements, contracts and leases
- Developing a strategy to manage the non-insurance risk transfers through an enterprise risk management (ERM) process
- Advise and assist with claims that may occur under policies held by the organization
In addition to these critical risk management functions, risk managers need to assist a company in determining adequate limits of liability, deductibles and identifying coverage deficiencies or overlaps where they may exist. The role is also critical in helping an organization understand their risk appetite and risk tolerance – that is how much loss they can comfortably absorb in a single occurrence and how much loss they are willing to absorb within a fiscal year.
The question becomes: how is your company managing its risk? We have identified key risk management functions that every company should be performing each year, and help clients navigate the process. This guidance is the reason many companies are outsourcing the risk management function to risk management consultants who can provide both transparency and objectivity in communicating with the c-suite executives about the company's risks.
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