NAVIGATING THE FOUR PILLARS OF BUSINESS RISK

Helping clients understand and manage risk

Effective risk management isn’t just about checking boxes; it’s the backbone

of resilience for businesses. It keeps their assets safe, their reputation intact, and their future bright.

By Randy Boss, CRM, MWCA, SHRM-SCP

As risk and insurance advisors, we help our business clients stay on top of their game by managing four crucial types of loss exposures: property, liability, personnel (people), and net income. Before we even think about insurance, we should consider prevention first by ensuring that we’ve helped them properly identify and analyze these risks.

Now, let’s talk about why this matters. Effective risk management isn’t just about checking boxes; it’s the backbone of resilience for businesses. It keeps their assets safe, their reputation intact, and their future bright. When we help them spot, assess, and tackle risks head-on, they can confidently navigate through challenges and even find opportunities for growth along the way.

So, what are these four categories all about? Let’s look at each one.

Property. Think of damage to buildings, equipment, or inventory from fires or wind. These losses aren’t just headaches; they can hit the bottom line hard. That’s why regular check-ins, reviews and a solid continuity plan are gold to avoid unnecessary losses.

In 2013, a massive tornado tore through Moore, Oklahoma, leaving a trail of destruction in its path. Among the businesses affected was a local hardware store, Moore Hardware, in the heart of the community. The powerful winds ripped apart the store’s roof and walls, causing extensive damage to the building and interior fixtures. The tornado also overturned shelves, scattered merchandise, and shattered windows, resulting in a significant loss of inventory and equipment.

Moore Hardware faced the daunting task of rebuilding its store and restocking its inventory in order to resume operations and serve the community’s needs. This real-life example highlights natural disasters’ sudden and devastating impact on businesses. It underscores the importance of robust insurance coverage to aid recovery efforts and mitigate financial losses.

Liability. This covers everything from bodily harm to legal tangles. Whether it’s a slip and fall or product liability, having the right coverage is key to keeping the business out of hot water. A real-life example of a large liability loss to a business is the Ford Pinto scandal in the 1970s, where the Ford Motor Company faced significant liability claims and public backlash following revelations about safety defects in the design of the Ford Pinto subcompact car.

The Ford Pinto was found to have a structural flaw in its fuel tank design, which made it vulnerable to rupturing and catching fire in rear-end collisions. This defect led to numerous accidents and fatalities, with victims suffering severe burns and other injuries. Ford was accused of prioritizing cost-cutting measures over consumer safety by knowingly allowing the Pinto to go into production despite internal memos and studies highlighting the safety risks. As a result, Ford faced a barrage of product liability lawsuits from victims and their families alleging negligence, wrongful death, and personal injury. The company ultimately settled many of these lawsuits out of court, paying substantial compensation to plaintiffs.

The Pinto scandal served as a cautionary tale about businesses’ ethical and legal responsibilities to ensure product safety and transparency, highlighting the potential financial and reputational consequences of failing to address known safety risks.

Personnel or “people risk.” From workplace accidents to issues like harassment or discrimination, it’s about keeping the team safe, happy, and productive. Because when they’re taken care of, the business thrives.

In 2018, an industrial accident involving heavy machinery occurred at a manufacturing plant in Ohio. During routine maintenance, a worker’s hand got caught in the machinery, resulting in severe injuries. Emergency responders were called to the scene, and the injured worker was immediately transported to the hospital for emergency medical treatment. The incident prompted the Occupational Safety and Health Administration (OSHA) to investigate the cause of the accident and assess whether proper safety protocols were in place. Deficits in machine guarding and safety procedures contributed to the worker’s injury.

This real-life example underscores the importance of implementing comprehensive safety measures in industrial settings to prevent workplace accidents and protect employees from harm. It also emphasizes the need for regular training and supervision to ensure that workers are aware of potential hazards and equipped to handle machinery safely.

Net income loss. Picture disruptions to day-to-day operations, whether due to a fire or other unexpected event. That’s where business interruption insurance comes in, helping cover lost revenue and expenses until things get back on track.

In 2018, a fire engulfed a family-owned hardware store in a small town in California. The fire, which started in the store’s storage area due to an electrical fault, quickly spread throughout the building, destroying inventory, equipment, and the structure itself. The hardware store, a staple in the community for decades, suffered a devastating loss of business income due to the fire.

With the store rendered uninhabitable and inventory destroyed, the owners could not resume operations, leading to a loss of revenue from retail sales, contractor services, and rental equipment. Despite efforts to rebuild and reopen the business, the financial strain caused by the business income loss proved insurmountable. The owners struggled to secure financing for reconstruction and faced challenges in retaining employees and customers amidst the prolonged closure. Ultimately, in 2020, the owners decided to permanently close the hardware store, unable to overcome the financial and operational hurdles stemming from the fire.

This example underscores how a business income loss due to a fire can force a company out of business, even one deeply rooted in the community. It highlights the challenges small businesses face in recovering from such disasters and the importance of adequate insurance coverage and disaster preparedness measures to mitigate the financial impact.

In a nutshell, staying on top of these four categories is key to keeping businesses shipshape. When we help our business clients understand and