The Cost of Risk is one of a companies largest expenses, but you won’t find it listed on an income statement. You will find “Insurance”, but Insurance is only one component of the Total Cost of Risk. For many companies, insurance premiums account for less than half the cost of risk. Other costs include money spent on uncovered losses or funding deductibles, time spent dealing with claims and time spent training employees to be safe, and creating safety and HR policies and procedures.
Despite the benefits of proactively managing risk, many companies do not make it a priority and fewer take advantage of the services that their broker may be able to provide. According to a survey sponsored by Chubb Insurance Company, only 15% of middle market companies rely heavily on an insurance agent or broker to help them understand and manage risk. The Middle Market Indicator Report mentions that the percentage is surprisingly low, despite the fact agents and brokers can help insurance buyers “better understand their exposures, mitigate risks, and secure the insurance coverages for their unique needs so they can focus on continued growth and success”. The report adds that “Working with these risk management professionals can help middle market firms better understand their evolving exposures and avoid potential insurance coverage gaps”.
Why do so many middle market companies not utilize their broker to help reduce the frequency and severity of their losses? Maybe the broker they work with doesn’t provide these services. Sadly, many brokers don’t. Possibly their broker does, but the company is either unaware of it or has chosen not to take advantage of it.
You should discuss the Risk Control services your broker offers (if they don’t have a good answer you should consider a different broker). Are these services included within the commissions paid by the insurance company, or is there an additional fee? Has the broker coordinated their services with the services your company already performs in house, as well as the services provided by your insurer? All three corners of this triangle are critical to effectively managing your risk.
Investments in reducing the cost of risk usually pay huge dividends. It has also been our experience as Risk Advisors that the safest companies tend to be the most profitable companies.