Every year, worldwide, there are over 350 natural catastrophes that occur on average. In the face of many new and evolving risks, from pandemics to climate change catastrophes, businesses need to be resilient if they want to emerge relatively unscathed.
There’s never a need to worry during good times. You can focus on your business and growing your vision. But what happens in the event of a disaster? An earthquake, flood, or fire for instance, that causes severe damage to your assets, and consequential interruption to business? This is the kind of Risk that must be managed.
What’s at stake for you as a business?
Apart from the actual damage to property, as a business owner, you are likely to face other problems. There is likely to be a loss of business continuity, leading to a loss of customers, making the time ripe for competition to move ahead of you.
It’s estimated that during the Twin Tower terrorist attack of September 11, 2001, around $10 billion in claims were filed for business-interruption losses, much of them far away from Ground Zero, say reports. Reinstatement of property can take more than a year in some cases and therefore you are looking at a long time before businesses return to their pre-disaster glory.
Although the reinstatement clause in property and casualty insurance works on the principle of indemnity, which means that the damaged property or asset is replaced with a new asset of the same kind, type, and specifications, the process will take time.
Prevention is key
So, while property and casualty lines insurance does its bit to help you recover from damage, the adage prevention is better than cure holds here as well. And by prevention, we mean, risk management.
Maintaining business continuity through disruptions takes careful planning and one needs processes to keep operations up and running or restore them as quickly as possible in the event of a major disaster.
Risk management helps to control risks from turning into issues that can negatively affect business operations and the bottom line. The better your risk management, the better it is for your business.
There are four steps to risk management.
1. Risk identification
This involves identifying and classifying sources of a risk to realize what must be managed in a construction project. Potential problems must be identified before assessment.
This could include:
- Property and engineering risk advocacy to assist the Insured in understanding specific exposures from both operational and financial perspectives
- Business interruption and business continuity planning
- Risk inspection through thermography studies, fire and electrical safety system audits, structural safety audits, hazard operability studies, and so on
- Identification of industry-specific risks
2. Risk assessment
This second step in risk mitigation involves analyzing what could happen if a hazard occurs. A business impact analysis is conducted to determine the potential impacts resulting from the interruption of critical business processes.
This consists of:
- Risk analysis and risk planning assistance
- Verifying property (COPE) data
- Evaluation of ergonomics
- Cumulative injuries/repetitive motion injury and exposure assessments
4. Risk control planning
This is the point in the risk management strategy when enterprises evaluate potential losses and take proactive steps to reduce or eliminate the threats. This is a key component in enterprise risk management.
Here, the activities involved include:
- Negotiating risk improvement plans and third-party engineering services
- Utilising modelling techniques, developing PML figures and annual aggregate loss projections for perils like catastrophic events, man-made risks, fire, and so on
- Public and product liability risk control consulting
5. Risk control implementation and supervision
This involves putting in place a strategic plan to manage identified threats.
Here the steps you would go through are:
- Safety education and monitoring
- Implementation of loss prevention techniques
- Customised training programs based on your specific risk profile
- Ensuring Occupational Safety and Health Administration (OSHA) and Public Employees’ Occupational Safety and Health (PEOSHA) compliance
- Development and implementation of workers’ compensation safety programs
- Ensuring safety in construction work
These risk mitigation strategies can help prevent business losses arising from unforeseen disasters to a large extent. But insurance broking firms need to step up to the plate and help companies in risk management, and not focus solely on marketing property & casualty lines.
Sourcing accurate risk information today needs to be part of the client/insurance broker relationship, with transparency of information being the driving force. This will not only help clients in ensuring their businesses do not face losses but also help insurance firms design tailormade cost-effective coverage.
That is what we aim to do at Odin. So do get in touch if you are looking for a comprehensive risk mitigation strategy to complement and enrich your property and casualty insurance plan.