Risk management was once regarded as an insurance purchasing function for the risk manager, or even for local plant managers, with no connection to the company’s broader operational or financial priorities.
But with the economic downturn, more CEOs and CFOs are re-evaluating their purchasing habits for all facets of the operations, including insurance premiums. Further, with the number of natural disasters in the past few years, protecting the company’s assets and revenue stream has been front of mind for CEOs and CFOs, and risk management has become a key part of the overall financial and operational strategy, says Rebecca Newman, Director of Aon Mergers & Acquisitions, a part of Aon Risk Services.
“All too often, we run into companies not taking this approach and leaving room for improvement, both in terms of coverage and premium savings,” says Newman. “By purchasing insurance on a consolidated basis, broader coverage terms can be negotiated and often, premium savings can be achieved. But most important, this consolidated approach to purchasing insurance forces the company to develop a risk management philosophy after thoughtfully considering its appetite for risk.”
Smart Business spoke with Newman about how to develop a corporate risk management program and the benefits that come with it.
At what point should a company take a risk management approach?
Most large companies follow this strategy already. We most often see a decentralized approach to risk management when companies have grown substantially — either organically or by acquisition — and lose track of insurance along the way, or in very lean organizations, where CFOs are hesitant to include another item on their long list of responsibilities. Every company should be evaluating its risks from the top, identifying all the noninsurable and insurable risks. Many mid-sized and small companies purchase insurance based on statutory, lender or contractual requirements, and fail to think beyond the mandates until they suffer a loss. It is these companies that have the most to gain from this approach.
What lines of coverage can be consolidated?
All lines of coverage, including workers’ compensation, automobile, general liability and property can be consolidated. Repeatedly, we have seen companies purchasing different policies for each location, state or subsidiary, but when the risk profile is aggregated across the entire corporation, premium savings up to 40 percent can be achieved. Consolidating the exposure information (i.e. payroll, sales, autos and property values) usually gains negotiating leverage in the insurance marketplace.
