Risk assessment process takes on growing importance in a challenging economic environment

Kevin Thompson, MBA, JD, is President of Insurance & Risk Management Services. IRMS provides risk management advice for property and casualty clients, serving virtually all organizations needing P&C insurance, including private industry, municipalities and not-for-profits. Kevin's experience includes: Director of Corporate Risk Management for Eli Lilly & Company, VP of Risk Management for Mayflower Group, CFO and Treasurer for Monroe Guaranty Insurance Co., and Financial and Budget Analyst for Chrysler Corporation. His diverse background provides the foundation for a unique perspective concerning complex property/casualty insurance matters. This experience translates into a comprehensive and thorough review of insurance issues resulting in significant benefits to the client. He is also Of Counsel to Plews Shadley Racher & Braun LLP. PSR&B is the leader in the fields of insurance coverage and environmental law throughout the Midwest.

kthompson@psrb.com . Insurance & Risk Management Services . 317-637-0700

Any successful business (particularly small to middle-market companies that do not have a dedicated internal risk-management professional) must take a more active role in managing their risks to continue to obtain viable insurance coverage at an affordable price.

More important, the attributes of a good risk-management program simply make sense in efficiently managing your business, not to mention the direct benefits to your employees’ safety and well-being.

The Risk Assessment Process
The starting point of a successful risk management program begins with a risk assessment. At a minimum, the assessment consists of reviewing in-force insurance policies, historical loss experience, safety and loss prevention programs, and liabilities inherent in the operation of your business.

A principal product of the assessment is a written report, including findings and recommendations, which will lead to dialogue between your management team and your commercial insurance agent. Among other items, a comprehensive risk assessment should include the following areas of review:

• Ensure proper documentation to avoid unwelcome surprise or exposure. Audit policy information, endorsements, certificates and named/additional insured records.
• Do not inherit others’ losses. Conduct loss-run review and verification of historical loss experience.
• Ensure appropriate premium credits received. Take actions to mitigate/prevent losses, and communicate details to your insurance carrier.
• Do not pay for unnecessary coverage. Analyze potential gaps/overlap and resulting impact on premiums.
• Pending claims unpaid? Review outstanding demands, update to extent necessary, and pursue valid claims against current and previous insurance carriers.
• Verify that coverage aligns with assumed liabilities. Review contractual liabilities, indemnification and assumption of risk.
• Confirm that premiums are driven by accurate property and asset values. Conduct comprehensive review of values, aligning coverage limits with the property exposures.
• Clerical errors can inflate cost. Complete review of Worker’s Compensation employee classifications, experience modification and related premium calculation.
• Analyze insurance program design. Develop optimal insurance structure and limits; self-insure to appropriate levels.
• Review industry and company-specific coverage needs. Survey current developments in the insurance market and identify alternative coverages available.

Most CFOs, financial professionals or others responsible for property/casualty insurance administration devote only part of their time to risk management. The risk assessment will provide tools for the financial professional to manage risk more proactively and to develop a fundamental understanding of your company’s risk management program, and it will even the playing field in negotiating pricing and terms for the insured’s range of insurance products and services.

The risk assessment will also ensure the coverage aligns properly with underlying exposures, contributing to the overall cost-effectiveness of your property and casualty insurance program.

Risk Assessment Follow Through
Detailed communications to the insured’s broker regarding risk-mitigation efforts can significantly reduce or otherwise control premium increases at renewal. Just doing the right thing is not enough, since communications via the broker to the commercial markets is the key to telling your story.

Even the best risk-management practices are only as good as the communication to and understanding of your property/casualty carrier.

The risk-assessment process will help build a sound partnership between the property/casualty insurance carrier, your insurance agent and the insured. Over time, the financial professional or other individual with direct responsibility for the risk-management function will develop expertise to better manage risk.