Why risk management needs to be part of your DNA

Why risk management needs to be part of your DNA | Insurance Business America

Why risk management needs to be part of your DNA

It’s in everyone’s interest to get things right for clients, and risk management professionals who give expert advice and counsel will always have a competitive edge, says Kevin Pallett (pictured), managing director of Aspen Risk Management Ltd.

It’s an age-old adage that the customer is always right.

But helping customers make the right decisions requires a partnership with specialists who understand the complex issues that are so vital to a successful business.

As a matter of course, small and medium-sized business owners engage experts in professional services fields – and the area of insurance and risk management should be no different.

Earning trust and respect is crucial and a clear and open relationship between clients, brokers and insurers is essential to ensuring the correct cover is in place. However, reviewing and assessing risk management is often far from the top of the agenda when, in fact, taking measures to prevent and recover from incidents can bring insurance costs down. When competing in increasingly competitive markets, longer-term thinking is likely to be focused on strategic business planning.

So, clients need advisors who ‘have their back’ and are not afraid of asking probing questions to help educate them on important considerations that may not be obvious, not least in the area of risk management.

For example, a recent report by the Royal Institution of Chartered Surveyors (RICS) estimated increases in building costs upwards of 3% each year for the next five years. In fact, the figure could be closer to 5% depending on the outcome of Brexit negotiations.

This trend alone requires customers to review their sum insured for buildings and property to make sure it is accurate to cover the realistic cost of any future rebuilding.

Risk management experts should be advising clients to factor in these kinds of wider changes in the landscape, raising awareness, and starting a conversation on what their actual needs are and how future issues can be mitigated now by preventative measures.

The reality can often be very different from the presumed, particularly when it comes to business interruption. If a customer suffers a factory loss that interrupts their business it could take two years to rebuild once planning permission, quotes and engaging builders are factored in. For manufacturers, there is also the issue of replacing critical machinery. Will it be ‘like-for-like / as new’ or do technological advances now offer potential efficiencies? Where will it come from, how long will it take to get it, and could currency fluctuations increase actual costs?

Again, time is a factor, as bespoke machinery can take months, sometimes years, to be operational depending on complexity once it is built, tested and installed. A strong professional relationship will also encourage customers to be pragmatic and only cover what is required. A redundant piece of plant that would be junked in the event of an incident should be flagged as such and the insurer will take this into account. These areas are too often not considered when the focus is just on ‘bricks and mortar’ and price.

Under-insurance is a serious problem and policies, by their nature, can seem complicated and broker expertise is essential for customers to understand their cover. Being seen as an expert by educating and advising on the best risk management strategies not only increases differentiation in the market, it also shows true customer-focus.

Brokers and insurers must continue their transition from price competitors to proactive and trusted advisors and partners who can show the true value of what they can offer. Insurance should only be part of the solution, with risk management being the key issue that actually needs to be addressed by businesses.

Many businesses are trading today in an environment of some uncertainty and reviewing insurance cover is not always a priority. But brokers and insurers owe it to clients – the people they want to maintain and strengthen a long-term relationship with – to change this.

Ensuring customers understand that strong risk management must become part of their DNA is one of the vital building blocks for success and should be the new normal.