How safe is your business? Companies using risk management plans to protect bottom lines.

AuthorOrr, Vanessa
PositionINSURANCE ESSENTIALS

For many businesses, risk management is somewhat of an afterthought. Until something bad happens, company owners may not consider the idea of protecting the business from loss to be of primary importance.

"Risk management and loss control can have huge implications in protecting a business and its bottom line," says Christopher S. Pobieglo, president of Business Insurance Associates. "The reality is that a business can get probably away for a few years without risk management controls in place, but sooner or later, something is going to happen. A business owner can do everything right for 20 years, but one uninsured claim can run into the millions and wipe out 20 years of work."

Risk management is generally defined as the process used to decrease exposure to, and provide protection from, risk. While some companies have their own in-house risk managers, others may look outside to hire professionals to help them determine potential losses. "There are many types of risk; anything from transportation and vehicle risks to the loss of key people, owners or customers," explains Dan Crawford, president of Pippel Insurance Agency. "There is also the potential of risk to real property, including buildings, their contents and data. Business owners need to look at the big picture to determine what could cause physical or financial risk to themselves, their lives and their businesses."

Creating a Risk Management Program

The first step in any risk management program is to identify the risks that a business faces. "If you don't identify the risk, you can't develop strategies to deal with it," explains Pobieglo. "You don't need to make judgments at this time about how severe or unlikely the risk is; you want to list anything and everything, no matter how remote."

Businesses should then quantify each risk by its frequency and severity. "How often could this risk happen and what would be the consequences?" asks Pobieglo. "Business owners should assign a value to each risk, and then determine strategies to address these risks."

Strategies can take a number of forms from buying insurance to creating an employee safety plan to carefully scrutinizing contracts before they are signed. "You want to set up ways to control what you can; for example, the owner of a tourism company can minimize his transportation risks by not flying clients in bad weather," explains Crawford. "After mitigating what risks they can, companies should then decide how to handle the risk...

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