A solid insurance strategy is comprised of more than insurance alone. In order to fully protect your business from unexpected losses and reduce overall risk cost, you must have a comprehensive risk management strategy in place. This strategy will identify organizational risk, assess and control its impacts, and have a plan for how the organization will pay for a loss event. This article discusses the five basic steps to develop an effective risk management strategy.

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BY LISA WINCHESTER
A
solid insurance strategy is comprised of more
than insurance alone. In order to fully protect your
business from unexpected losses and reduce
overall risk cost, you must have a comprehensive risk
management strategy in place.
In this context, risk is the chance that an event that
negatively impacts your organization’s financial health will
occur. An effective risk management strategy thoroughly
identifies organizational risk, assesses and controls its
impacts, and has a plan for how the organization will pay
for a loss event. There are five basic steps.
1. Identification
This is the most important step to establish your
insurance and risk management strategy. Risk first must
be recognized before it can be effectively assessed,
prevented and funded. Risk identification requires an
intimate knowledge of the organization’s products,
services and critical resources, as well as the cultural,
political and legal environment in which it lives.
The general categories of risk are property, liability,
human and income. Property risks include buildings,
furniture, tenant improvements, computers, equipment
and other tangible property. Liability risks arise from an
obligation or duty owed to others under tort law, criminal
law, or federal or state regulations. Human risk is injury,
disease or death to the workforce. And lastly, income risk is
loss to revenue and profits. Risk comes from both internal
and external factors, including employees, products,
procedures, customers, regulations, natural disasters and
the economy.
The best resource for risk identification is the
company’s management team and employees. Other
resources are industry associations and a risk manager
or broker. A physical workplace inspection should be
conducted and operational flow chart(s), industry
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checklists, contract terms, policies and procedures,
financial statements, compliance reports and audits,
current insurance policies, and past loss experience
should be reviewed.
2. Analysis
The next step is to assess the likelihood of the
risk event and its financial impacts, which aids in risk
prioritization. Once prioritized, it is easy to justify where to
spend risk control resources, determine what risks to self-
fund and support insurance buying decisions.
Risk measurements, or impact, can be as categorized
as high, medium or low by taking specific impacts on
finances, organizational strategy and operations into
consideration, as well as stakeholder concerns. The same
is true for likelihood.
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S T R A T E G I E S
Article reprinted from Spring 2018
Insurance Strategies
Risk Management: It’s More than Insurance
Severity of Impact/Consequences
Minor Moderate Major
Frequent Medium High High
Likely Low Medium High
Remote Insignificant Low Medium
Probability

2. 3. Control
Any decision or action that reduces the likelihood,
frequency, severity or even the unpredictability of loss
is risk control. Occupational injuries can be prevented
by assessing workflows and processes to identify
opportunities for failures and human errors, followed by
employee training to avoid theses failures. Contract risk
can be transferred using indemnification and insurance
requirements. These efforts not only reduce and prevent
losses but also have an effect on availability and
affordability of insurance.
4. Financing
Accidents happen. Is the organization able to pay for
legal expense, compensable or punitive damages, fines,
penalties, medical expenses, replacement of property,
etc.? Insurance is one way to fund losses. Non-insurance
methods to finance a loss include self-funding and
borrowing external funds. These are needed when the
availability or cost of insurance is prohibitive. They are
recommended when the organization can accurately
predict losses, there is effective risk control, and the
organization has adequate financial means to fund its
own losses.
5. Administration
Decisions need to be made on how to treat and fund
each risk. Add your risk control and funding methods to your
risk matrix to illustrate and communicate risk strategies. The
matrix and the risk management process is fluid and should
be updated regularly with recommendations that improve
the overall treatment of risk.
Insurance alone cannot protect your organization;
insurance buying decisions are best made in collaboration
with a risk management strategy. The foresight gained
by developing a proactive risk management strategy to
prevent, mitigate and pay for losses could very well make
the difference in the vitality and long-term health of your
organization.
LISA WINCHESTER
CBIZ Insurance Services, Inc.
Columbia, MD
443.259.3285 • lwinchester@cbiz.com