Riskonomics - Calculating Your True Cost of Risk

Selling insurance isn’t easy.

It’s the one thing you are forced to buy, that you inevitably get punished for using.

So typically, insurance buyers alike are not too keen on the subject. It’s the last thing they want to talk about.

I’m lucky though because I don’t sell insurance.

I’m not simply a conduit to the insurance marketplace.

I sell true partnership as an extension of my clients' executive teams.

I sell transparency and certainty in an industry that has traditionally been smoke and mirrors.

There is a stark difference between placing insurance and being a risk management partner.

Let me explain:

The truth is any business owner or executive can reach out to the thousands of insurance agents that are out there and ask for a quote.

But I’ll be honest, that’s not in their best interest.

It’s not their fault because traditionally, that’s how insurance has been procured by many buyers for many decades.

And that’s largely because the insurance industry has conditioned buyers to do it that way.

Not only does that completely deplete a business owner’s leverage with the carrier marketplace, it leaves their balance sheet exposed significantly.

If you don’t choose a partner that understands your business, asks the right questions, and analyzes the right opportunities for your business, you are leaving untold dollars on the table and exposing your company to immeasurable risk.

A true risk management partner looks at TOTAL cost of risk, and there is much more to that than simply premium/rate.

Think of your premiums as the tip of an iceberg.

Below the surface, there are a myriad of costs that are likely impacting your balance sheet potentially more so than the premium dollars you are trading with an insurance company.

This includes: losses (both direct and indirect), administrative costs, lost time, risk financing costs, business interruption, compliance costs, risk management expenses, opportunity costs, etc.

Let’s take a deeper dive:

1. Premiums: The cost of transferring your risk to an insurance company.

2. Deductibles and Self-Insurance: Expenses associated with deductibles and self-insured retention, which are the amounts the company must pay before insurance coverage kicks in.

3. Claims and Losses: Costs related to actual claims and losses incurred by the company, including payments made to settle claims and legal expenses.

4. Risk Management Expenses: Costs associated with risk management activities, such as hiring risk managers, conducting risk assessments, and implementing safety measures.

5. Risk Financing Costs: Expenses for alternative risk financing mechanisms like captives or risk retention groups.

6. Loss Prevention and Mitigation Costs: Expenditures aimed at reducing the likelihood and severity of potential losses, such as safety training and equipment upgrades.

7. Business Interruption Costs: Expenses resulting from business interruptions, including lost revenue and additional expenses incurred during downtime.

8. Regulatory Compliance Costs: Costs associated with meeting regulatory requirements and compliance, which may include fines and penalties.

9. Risk Transfer Costs: Fees and expenses related to reinsurance or other risk transfer arrangements.

10. Risk-Related Administrative Costs: Administrative expenses related to managing and administering insurance programs and risk-related activities.

11. Opportunity Costs: The potential revenue or profit a company might have earned if resources tied up in risk management had been used elsewhere.

12. Reputational Costs: The damage to a company's reputation that can occur due to risk-related events.

The fact of the matter is, if your broker isn’t having in depth conversations with you about your TOTAL cost of risk and creating a multi-year strategy alongside you to lower your TCOR over time, then you are missing a massive opportunity.

Not all brokers are created equal.

Nothing is good nor bad but by comparison.

Rather than playing the quoting game each year, or even simply staying with an agent due to comfortability, I challenge every business owner to consider a due diligence process with a trusted broker who sees the whole picture versus just the tip of the iceberg.

Let’s have a conversation!

[email protected]

(214) 226-2809