Risk Management

MOVING THE CONVERSATION

Building awareness and ownership of risk management

Over the last few years I’ve observed more independent agents expanding their conversations beyond insurance to encompass risk management. This makes sense because insurance is the fourth step of the risk management process. The first, as you probably know, is identifying risk; second is analyzing risk; third is controlling risk; fourth is arranging insurance; and fifth is monitoring risk. If you’re not familiar with this five-step process and/or would like to learn more, consider taking the Certified Risk Manager course offered by The National Alliance for Insurance Education & Research.

It’s been my experience that when we focus on the first three steps, clients we serve are rewarded with fewer claims and those that do occur are less severe. Of course, this ultimately leads to lower insurance costs.

Many businesses cannot afford to employ a full-time risk manager. That’s where agents and brokers can help—where we can expand the conversation beyond insurance and help clients decide how to fill the gap.

It’s not always possible to assign a cost or value to risk management procedures. That doesn’t mean they’re not important. Take as an example the experience my agency had working with a store display manufacturer. We started working with the firm a few years ago and quickly identified a risk of heavy wood material falling from storage racks over a work area. The client installed a net to protect workers below. Two weeks later some material fell, and fortunately the net protected the workers. The client was grateful that we took the time to take them through the risk management process instead of rushing to make the insurance sale.

Many businesses cannot afford to employ a full-time risk manager. That’s where agents and brokers can help—where we can expand the conversation beyond insurance and help clients decide how to fill the gap.

To do that, we need to understand the roles and responsibilities of a risk manager. I could probably write a series of articles on these, but for now, let’s look at a spot-on and succinct list drawn from Marquette University’s Risk Unit:

• Provide a method to identify, analyze, and control the financial impact of loss on the organization, employees, the public, and the environment.
• Explore the use of realistic and cost-effective opportunities to balance commercial insurance with retention programs.
• Prepare risk management and insurance budgets and allocate claim costs and premiums to departments and divisions.
• Provide for the establishment and maintenance of records including policies and claim and loss experience.
• Assist in the review of major contracts, proposed facilities, and/or new program activities for loss and insurance implications.
• In cooperation with legal counsel, maintain control over the claims process to ensure that claims are being settled fairly, consistently, and in the best interest of the entity.

Cooperation and support

To be successful, the Marquette team rightly points out, the risk manager needs assistance from other groups in the organization. Cooperation from everyone is essential. Other managers must provide information that is necessary for the risk manager to review and identify loss exposures. Supervisors must be aware and take ownership of their role in the prevention of loss and be accountable to follow procedures, attend risk control meetings, and, when appropriate, provide recommended training.

One of my favorite and most impactful examples of this awareness and ownership involves aluminum manufacturer Alcoa. The story appears in Charles Duhigg’s book Power of Habit. I can’t tell the story better than Duhigg, so here’s an excerpt:

On a blustery October day in 1987, a herd of prominent Wall Street investors and stock analysts gathered in the ballroom of a posh Manhattan hotel. They were there to meet the new CEO of the Aluminum Company of America—or Alcoa, as it was known—a corporation that, for nearly a century, had manufactured everything from the foil that wraps Hershey’s Kisses and the metal in Coca Cola cans to the bolts that hold satellites together.

A few minutes before noon, the new chief executive, Paul O’Neill, took the stage. He looked dignified, solid, confident. Like a chief executive.

Then he opened his mouth.

“I want to talk to you about worker safety,” he said. “Every year, numerous Alcoa workers are injured so badly that they miss a day of work.

“I intend to make Alcoa the safest company in America. I intend to go for zero injuries.”

The audience was confused. Usually, new CEOs talked about profit margins, new markets and ‘synergy’ or ‘co-opetition.’ But O’Neill hadn’t said anything about profits. He didn’t mention any business buzzwords.

Eventually, someone raised a hand and asked about inventories in the aerospace division. Another asked about the company’s capital ratios.

“I’m not certain you heard me,” O’Neill said. “If you want to understand how Alcoa is doing, you need to look at our workplace safety figures.” Profits, he said, didn’t matter as much as safety.

The investors in the room almost stampeded out the doors when the presentation ended. One jogged to the lobby, found a pay phone, and called his 20 largest clients.

“I said, ‘The board put a crazy hippie in charge and he’s going to kill the company,’” that investor told me. “I ordered them to sell their stock immediately, before everyone else in the room started calling their clients and telling them the same thing.

“It was literally the worst piece of advice I gave in my entire career,” he said.

Within a year of O’Neill’s speech, Alcoa’s profits would hit a record high. By the time O’Neill retired in 2000 to become Treasury Secretary, the company’s annual net income was five times larger than before he arrived, and its market capitalization had risen by $27 billion. Someone who invested a million dollars in Alcoa on the day O’Neill was hired would have earned another million dollars in dividends while he headed the company, and the value of their stock would be five times bigger when he left.

What’s more, all that growth occurred while Alcoa became one of the safest companies in the world.

That’s the kind of customer we all want. And by moving the conversation to risk management, by helping clients develop a passion for safety, we can help organizations get closer to that ideal.

I wholeheartedly encourage you to buy Power of Habit and read the full story about Alcoa and Paul O’Neill. I buy the books 10 at a time and give them to clients and prospects with my business card tucked in front of Chapter 4. I’ve found it’s a great way for me to move the conversation beyond insurance to risk management.

The author

Randy Boss, CRM, CRA, MWCA, SHRM-SCP, is a Certified Risk Architect at Ottawa Kent in Jenison, Michigan. As a Risk Architect he designs, builds and implements risk management and insurance plans for middle market companies in the areas of safety, work comp, human resources, property/casualty and benefits. He has over 40 years of experience and has been at Ottawa Kent for 36 years. He is the co-founder of OSHAlogs.com, an OSHA compliance and injury management platform. You can reach Randy at rboss@ottawakent.com