RISK MANAGERS' FORUM
Clients of all sizes are looking for guidance in controlling the cost of risk
By Wayne P. Dauterive, CRM, ARM
Editor's note: This month we introduce a new risk management column which will be written regularly by members of the Certified Risk Managers (CRM) faculty. The CRM program is administered by the National Alliance for Insurance Education and Research, which also oversees the Certified Insurance Counselors (CIC) and the Certified Insurance Service Representative (CISR) programs.
What kind of challenges and opportunities does a hard market present for agents and brokers? Many notable events have led to the current state of the market, e.g., the failure to properly underwrite risk resulting in horrific loss ratios, declines in the stock market and interest rates that have greatly reduced investment income, and, of course, the September 11 terrorist attacks. With losses estimated to be as high as $70 billion as a result of these terrorist attacks, much will likely change in the insurance arena. Reductions in capacity, tightened contract terms, higher deductibles, insurance company bankruptcies and/or takeovers, and, as we have already experienced, soaring premium costs are some of the problems that have surfaced.
The effect of all this on business is that companies are forced to tighten budgets and cut costs. Risk management positions are often eliminated and in some cases outsourced. With an often shortsighted view of insurance as a necessary evil, management fails to realize how important an investment in risk management can be to actually controlling costs. Surviving risk managers have an opportunity to exhibit their value by controlling losses, tapping alternative markets, and reducing the overall cost of risk.
Herein lies the opportunity for agents and brokers. Risk management needs to become an integral part of any agency or brokerage operation, whether small or large. Because of price increases at renewal, along with more restricted coverage, many risk managers with large clients are already moving to alternative market options. They are showing more interest in captives, integrated risk, self-insurance, and capital market solutions. However, these types of programs can be complex and are not a short-term, quick fix for a troubled marketplace. For even larger companies, risk is being more broadly defined through a holistic approach now commonly referred to as Enterprise Risk Management.
What are clients who are not large enough for a risk manager doing? They may well be looking to you, their agent or broker, for help. You are involved in the risk management process by identifying, analyzing, and financing risk for them. For example, why not expand those services by including risk control efforts and possibly deductible plans to minimize their escalating insurance costs? (One practical tool for identifying and analyzing risk is "Agency Online," produced by The Rough Notes Company. A demo can be viewed at www.roughnotes.com.)
Regardless of the size of the client, the value of providing risk management services is in building relationships by helping clients control their cost of risk. Rather than being perceived as strictly a vendor of insurance, become a business partner with your clients by helping to protect their assets and reduce their cost of doing business. At the same time, it can be a means of increasing revenue on a fee-for-service basis. Buyers know that they need consultative brokers more than ever to deal with the new market realities. Key risk management advisory relationships are critical.
Risk will be viewed and managed from an entirely different perspective from this point forward. True underwriting--as opposed to cash flow underwriting--is critical. Risk management, therefore, becomes the key to controlling cost of risk in a hardening market. Implementation of risk management principles will enable you to effectively deal with this now prevalent higher risk environment.
Now is the time to educate yourself in risk management. Don't let this hardening market be problematic for you. Three primary sources of risk management education are the Certified Risk Managers (CRM at www.scic.com), Associate in Risk Management (ARM at www.aicpcu.org), and the Canadian Risk Management (CRM at www.rims.org) designations. Seek the training format and designation that is right for you. Turn this challenge into an opportunity, and stay a step ahead of the competition. Invest in risk management as an opportunity to partner with your clients in effectively protecting assets and controlling cost of risk, while building a lasting relationship. *
The author
Wayne P. Dauterive, CRM, ARM, is vice president of Certified Risk Managers International. He has held both public and private sector risk management positions as a municipal risk manager, a director of risk management for a Fortune 500 company, and as vice president of risk management services for a brokerage firm.