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Don’t Depend on Insurance: How to Proactively Assess and Manage Business Risks

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’s insurable, does that mean you should buy insurance?  Organizations today are transitioning from simply purchasing insurance to establishing a full risk management plan.

Managing Four Types of Business Risk

Businesses face four types of risk:

  • Strategic
  • Operational
  • Financial
  • Hazard

Leading organizations regularly review all four types of risk. In a 2021 Deloitte study, companies reported that they were anticipating a larger focus on non-financial business risks in the future, such as cybersecurity, ESG (environmental, social, governance), strategy, conduct/culture and operational resilience.

Avoid, Reduce, Retain, Insure: The Quadrant Method

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 risk management process, as well as an advocate to work alongside the people they’ve 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.

Avoid

Reduce

 

 

Retain

 

 

Insure

 

 

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. The typical private or family business does not have the resources to manage business risks alone. Therefore, it’s critical that the business owner partners with an experienced broker or advisor that has the resources to help manage or mitigate 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 pick 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
  • Operations & Structure
  • Compliance
  • 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 the 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 a strong business risk management process to control.


[Editors’ Note: To learn more about this and related topics, you may want to attend the following webinars: Understanding Risk Management Basics for Business Owners; Credit Insurance 101 and How to Build and Implement your Company’s Information Security Program. This is an updated version of an article originally published on June 12, 2019.]

©All Rights Reserved. July, 2021.  DailyDACTM, LLC d/b/a/ Financial PoiseTM

About Rusty Magner

Using TrueNorth's Benefits Navigator process, Rusty Magner partners with businesses to attract, reward and retain their best employees. Magner collaborates with our firm's team of specialists to bring clarity and control to benefits costs, allowing employers to actively engage and educate employees year-round on consumer mindfulness to increase participation and further reduce costs.

View all articles by Rusty »

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