Managing financial risks is vital to a company’s success

Money Posted 01/11/13
There are many core factors to consider when arranging insurance. To control costs, a top priority for many businesses is to negotiate better deals with suppliers, including finance and insurance. But do you include risk management in your cost control exercises? Risk manager Martin Coppard, of Sutton Winson, examines the issue.

Risk management is an often-overlooked key component in controlling costs. You are no doubt already monitoring your insurance premiums and challenging your insurance provider to ensure you’re not paying over the odds for cover, but policy premiums are only one of three key elements that determine your insurance bill.

Every time you claim there’s an excess to pay. If you’re a multi-site operation, potentially making 20-30 claims per year, these excess costs will soon mount up.

There are also all the small attritional losses; costs that fall under the radar of your insurance policy and instead are picked up on a company credit card and allocated to ‘overheads’. Individually, they may be for small amounts, perhaps £50 to £500 a time, but collectively they contribute to a much bigger bill. Can you easily identify the triggers behind these extra costs and the amount spent?

Monitor working practices, the workplace environment, your premises and assets. By recording minor losses at each location, you’ll be able to start to focus on improving site management, and reduce the number of incidents.

If you’re serious about reducing costs through tighter risk management controls, you should develop a monitoring and accountability culture across your business. The most effective improvements are made when senior management make staff responsible for undertaking and recording health and safety risk assessments and hold them accountable for ‘out of pocket’ expenses.

This approach will cut down expenses, minimise excess costs (due to fewer claims being triggered) and reduce the likelihood of a health and safety executive visit.

From October 2012, the HSE implemented a Fee For Intervention (FFI) cost recovery scheme, which means if you breach health and safety regulations, you’ll be charged £124 per hour for any inspection, investigation or enforcement action.

According to the HSE, in 2012 there were 173 workers fatally injured, over 22,000 major injuries, nearly 90,000 injuries serious enough to keep people off work for four days or more and 1.1million suffering from an illness caused or made worse by their working conditions.

Why put yourself at risk of more cost when it can be avoided?

Keep abreast of industry trends and regulatory changes, be proactive and expect your insurance advisers to do the same. What security measures do you have in place to, for example, opportunistic thieves?
Security should be top priority, preventing out-of-hours access to your premises etc. And this security doesn’t have to be expensive CCTV technology.

No in-house resources?

Some businesses and small SMEs haven’t the luxury of in-house resources that could deal with risk assessments. Non-compliance increases the probability of an accident and subsequent claim, which would increase insurance premiums making the business a less attractive proposition to insurers. However cost-effective support is readily available from either online technical resources or the help of a risk management consultant.

It’s important to work in partnership with a broker who understands your sector, your exposures and liabilities, and has the expertise to help you develop and manage an effective risk management programme. After all, insurance providers are here to ‘watch your back’ and protect your people, property, assets and reputation.

Insurance benefits

Alongside your usual insurance policy, additional policy benefits can be secured. Some insurers offer funding towards risk management improvements. These include such things as: intruder alarms, CCTV, perimeter protection, health & safety training – in fact anything that’s above and beyond the statutory requirements.

If you’ve implemented a robust risk management plan, why not insist that your insurer reviews your premium? Many insurers agree to two or three year fixed premium rates and a low-claim rebate agreement. This means that if your claims history is

low, you’ll be reimbursed with a percentage of the premium paid at the end of the policy term.

We all know how thin profit margins are these days so imagine the impact that savings through improved risk management and insurance premiums will have on your bottom line.

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