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 some element of risk. Some aspects are insurable, while some are not. But if 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. Companies continue to focus on non-financial business risks in the future, such as cybersecurity, ESG (environmental, social, governance), strategy, conduct/culture, and operational resilience.

The Quadrant Method: Avoid, Reduce, Retain, Insure

The world of risk is wide and broad. 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. This is done through working with your advisor to label and classify threats into one of four quadrants.

Once this is accomplished, go to work on your risk management plan and focus on 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 businesses 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 who 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 medical spending 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 risks need a strong business risk management process to control.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Property/Business Interruption and Cyber Liability
2. Understanding Risk Management Basics for Business Owners
3. Data Privacy Compliance

This is an updated version of an article published on June 12, 2019 and updated on July 21, 2021.]

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