Do You Know Your TCOR?

Numbers have power. As Nathanial West is credited with saying, “Numbers constitute the only universal language”. While each language has a different word for an apple, the way you express how many apples you have or want to buy is the same.

According to Wikipedia, the most common system for representing numbers used in the world today (e.g., 0, 1, 2, 3…) is the Hindu-Arabic numeral system that replaced Roman numerals in the late 14th century. Since then, we have adopted numbers to help us make advancements in science, engineering, and finance (to just name a few areas of modern society) for the betterment of mankind.

These days, we use numbers to help us make informed decisions in many ways.

Sometimes a high number is good like a FICO score or your on-base-percentage in baseball. In contrast, having a high score can be bad like your cholesterol numbers or your golf handicap (trust me, you don’t want my handicap number). Either way, numbers help us quantify where we stand amongst our peer group, so we know where to focus our efforts if improvements are needed.

So, this being the case, let me ask you a question.

Do you know your TCOR?

Calculating Your Firm's Total Cost of Risk

We all know that risk is an inherent part of doing business. Whether you run a small startup or a large multinational corporation, understanding and managing the various risks your firm faces is essential for long-term success. One critical aspect of risk management is calculating your firm's Total Cost of Risk (TCOR).

Your firm’s TCOR is a comprehensive measure that encompasses all the costs associated with managing risks, and it plays a pivotal role in making informed decisions about insurance, safety measures, and risk mitigation strategies.

What is TCOR?

TCOR is a financial metric that quantifies all the costs an organization incurs in managing its risks. These costs include not only insurance premiums but also other expenses such as deductibles, administrative costs, losses that are not covered by insurance, risk management staff salaries, safety measures, and any legal or regulatory fines or penalties resulting from claims. As a result, a properly calculated TCOR can provide a holistic view of the financial impact of risk on your organization.

Why Calculate TCOR?

Calculating TCOR is essential for several reasons:

1. Informed Decision-Making - Understanding the full scope of your firm's risk-related expenses allows you to make informed decisions about risk management strategies. This insight helps you allocate resources effectively to reduce your overall risk costs.
2. Cost Reduction - Identifying areas where your firm incurs high risk costs can lead to cost reduction opportunities. For instance, you might discover that certain safety measures or employee training programs can help lower claims and, consequently, insurance premiums. Trust me, insurance underwriters love hearing you are proactive on reducing your claims.
3. Risk Benchmarking - TCOR provides a benchmark for evaluating your risk management efforts over time. By comparing your TCOR from year to year, you can assess the effectiveness of your risk mitigation strategies.
4. Insurance Procurement - When renewing or purchasing insurance policies, knowing your TCOR is crucial. It helps you negotiate better terms with insurers and ensures that your coverage aligns with your risk profile.

Calculating TCOR Step by Step

So based on what you are reading here, you are intrigued in knowing your TCOR. Great! So where do you begin? Well to calculate your firm's TCOR, you will want to follow these steps:

Step 1: Identify Components - Gather all relevant data and identify the components that contribute to your TCOR. Common elements include:

• Insurance premiums: The total cost of purchasing various insurance policies. (e.g., actual insurance premiums, related financing costs (if applicable), etc.)
• Deductibles/Self-Insured Retentions (SIRs): The amount your firm pays out of pocket before insurance coverage kicks in.
• Claims and losses: Both covered (e.g., builders’ risk) and uncovered losses (e.g., liquified damages)
• Risk management expenses: Costs associated with risk management staff, training, and safety measures.
• Legal and regulatory costs: Fines, penalties, and legal fees resulting from claims or compliance issues.
• Third-party costs: Costs associated with third-party service providers, such as claims adjusters or consultants.

Step 2: Collect Data

Gather data for each component. This may involve reviewing financial records, insurance policies, and internal reports. To ensure your TCOR is relevant, it’s important you utilize accurate and up-to-date information.

Step 3: Calculate Each Component

For each component, calculate the annual cost. Be thorough in your calculations, considering factors like inflation and future projections. It's also important to distinguish between fixed costs (e.g., insurance premiums) and variable costs (e.g., claims).

Step 4: Sum All Components

Add up the costs of each component to calculate your firm's total cost of risk. The formula is straightforward:

TCOR = Insurance Premiums + Deductibles + Claims and Losses + Risk Management Expenses + Legal and Regulatory Costs + Third-party Costs

Once you gather this information, your TCOR analysis might look something like this:

Step 5: Analyze and Interpret

Once you have calculated your TCOR, analyze the data to gain insights. Compare your TCOR to previous years and industry benchmarks – especially when presented as a Percentage of your Total Revenue. Also, you want to assess the cost of potential risk mitigation strategies and identify areas where cost reduction or risk reduction measures may be necessary.

Conclusion

Calculating your firm's TCOR is a crucial step in effective risk management. It provides a comprehensive view of the financial impact of risk-related expenses and helps you make informed decisions to protect your organization's financial health. By identifying cost drivers and benchmarking against industry standards, you can optimize your risk management strategies and ultimately reduce the overall cost of risk to your firm.

Remember that TCOR is not a one-time calculation; it should be revisited regularly due to changing conditions (both internally and externally) at your organization. Doing so will help to ensure that your risk management efforts remain effective. Like going to you doctor each year to check your cholesterol levels, reviewing your TCOR on a regular basis helps you identify issues before they get out of hand.

At least when you get your TCOR scores, you don’t have to donate any blood!

Et al....

Review: Town of Telluride

Where is your happy place?

For many, that might be a nice beach-front resort in Mexico or Florida (big fan of Clearwater). Maybe, it’s a European capital like Paris or London (both great towns)? Or perhaps you crave some time with Mickey and Minnie at a Disney Park (the Star Wars: Rise of the Resistance is the coolest thing ever!).

However, for me there is one place that is my Place of Zen. Whether it’s winter or summer, it’s the place I always look forward to visiting and it never disappoints.

What is this magical place you ask?

It’s the Town of Telluride, Colorado.

What's So Great About Telluride?

Telluride, Colorado, nestled in the heart of the San Juan Mountains, is a picturesque town renowned for its unparalleled natural beauty and diverse tourist appeal. This charming mountain town attracts visitors year-round, drawing outdoor enthusiasts, art aficionados, and culture seekers alike. One of its primary attractions is its world-class skiing and snowboarding terrain, with the Telluride Ski Resort offering some of the most breathtaking alpine experiences in the United States. In the winter, tourists flock to the slopes to enjoy pristine powder and stunning vistas, while the summer months offer a playground for hikers, bikers, and adventure seekers exploring the rugged terrain.

Beyond its outdoor allure, Telluride boasts a vibrant arts and culture scene. The historic downtown, with its well-preserved Victorian architecture, hosts numerous festivals, including the renowned Telluride Film Festival and Telluride Bluegrass Festival, drawing music and cinema enthusiasts from around the globe. The town's lively streets are also dotted with boutique shops, art galleries, and gourmet restaurants, making it a haven for those seeking a dose of sophistication amid the natural splendor. Telluride's unique blend of outdoor adventure and cultural richness ensures that it remains a sought-after destination for tourists seeking a one-of-a-kind mountain experience.

Where to Sleep

When my family goes to Telluride, we typically rent a condo through a local real estate management firm or through the various websites that allow you to rent homes from owners. However, if that is not your jam, then there are several hotels in town to choose from:

Madeline Hotel & Residences – Touted as the only Forbes Travel Guide Five-Star Resort in Telluride, this place is fancy with a capital “F”. It is located right in the heart of the Telluride Resort and is within walking distance of the ski lifts. It’s too nice for a guy like me, but if you want comfort and easy access to the lifts then you would be hard pressed to do better than this locale.

Hotel Columbia – Nestled in the heart of the Historic District of Telluride (the actual town of Telluride, not the fancy, newly-built resort), this charming hotel is ideal if you want easy access to the lifts (its literally across the street from the hotel) but also waking distance to the center of town with its plethora of restaurants and shops. Not really suited for families but ideal for couples.

Mountainside Inn – This establishment is a bit dated (and it shows), but the price is reasonable considering it’s the Town of Telluride. The location is hard to beat. If you can forgo staying in a four- or five-star hotel but knowing you have great access to the rest of town, then this place is worth your consideration.

Where to Eat

Cosmopolitan – To say this place is wonderful would be an understatement. I love this place and whenever I go back to Telluride, this establishment is a must. On my most recent trip, I had a spicy tuna roll (most tasty) followed by the miso glazed black cod (nothing short of amazing). Great interior, staff, and food. It ain’t cheap (nothing in Telluride is), but it’s worth every dollar.

Brown Dog Pizza – It was during our 1st trip to Telluride that my family and I got introduced to Detroit-style pizza and our world has never been the same since. This place is just about the best pizza I have ever had – end of sentence. Our “go-to” is the Detroit-style Brooklyn Bridge. Honestly, I challenge you to find better pizza on this planet.

Baked in Telluride – Nestled in the heart of the Historic District, this is a gem of a local bakery. During my recent trip, I would get up each morning, walk to this place, and grab a coffee and a donut that was about the size of a salad plate. The menu also offers sandwiches, salads, pasta, and pizza. It’s just a joy to be there.

Where to Chill

Tomboy Tavern – Nestled at the bottom of the ski runs in the Telluride resort, this is a great place for apres-ski beverages in the winter or just a beer in the summer after hiking the mountain. The décor is great, and the beer selection is top notch. Sitting outside on the patio with a cold beverage and contemplating the meaning of life is one of my favorite things to do while I’m in Telluride.

Smuggler Union Restaurant & Brewery – This is a great little brew pub located in the Historic District of Telluride. It has a nice selection of house-made beers on tap and its close to the ski lifts. Not a bad place to hang out after carving the mountain all day.

Last Dollar Saloon – This is a local bar in the Historic District. The ground floor is nothing exceptional, but they recently added a roof top bar. Holy cow, the views on the roof are amazing! As I like to say, it has a “good vibe”. Whether its summer or winter, sitting up there on the roof with a drink in hand and an amazing view, the world’s problems can easily seem trivial.

The Verdict Is...

Telluride is my happy place. I’m a bit hesitant to let all of you about this wonderful town, but I want my readers to be happy too. You can thank me later once you’ve experienced this magical spot. Enjoy!

If you enjoy what you've read here and you think I might have a clue what I'm talking about, then please reach out to me if you would like me to present to your firm or organization. I have experience talking to professional organizations, trade conferences, as well as universities. I've also appeared in newspaper articles and podcasts. Also, I'm available for birthdays and bar mitzvahs.