Risk Managers' Forum
Differentiate your agency with risk management services
Greater expenditure of time will result in greater client confidence
By David McKinney, CIC, CRM, CSP, ALCM
The soft market, combined with emerging credit issues, is presenting significant challenges for independent agencies. Everyone is struggling to retain clients, much less add new business, and there is an ongoing effort to keep renewal revenues from further decreasing. Competition is increasing exponentially.
How can an agency keep renewals and add new business? The answer depends on how well your agency differentiates itself from its competitors.
The client has to purchase insurance from someone. How do you make sure it’s you? If you were asked how you differentiate your agency from others, what would you say? What would your employees say? Typical responses would be, “We have better people!” or, “Our technical expertise is second to none!” or how about, “Service is our number one goal!” That’s always a good one.
What do you or your agency bring to the table that is unique? How many agencies understand risk management principles and apply them to help their clients? My guess is that few do, and yet doing so could allow you to differentiate your agency in ways you may never have imagined. Using the risk management process will enhance your ability to retain current clients and bring new clients on board.
The risk management process begins with the identification of exposures. Although time consuming, this exercise frequently will uncover exposures not previously dealt with. When you unearth exposures that have not been identified in the past, your clients will have greater confidence in your abilities. In addition, it provides you the opportunity to assist the client in understanding that there are means of handling exposures other than insurance solutions. Talk about enhanced credibility!
There are many means to assist with risk identification. The following are types of tools identified in the Certified Risk Managers (CRM) program:
• Checklists and surveys
• Insurance policy review
• Physical inspections
• Compliance reviews
• Procedures and policies review
• Contract reviews
• Financial statement analysis
• Loss data analysis
Each of these tools is valuable, and in most cases you will need to use several methods.
Analyze and categorize exposures
Once risks have been identified, spend time analyzing and categorizing the exposures. The goal is to determine how to handle the exposures and prioritize them into “must do’s,” “should do’s,” and “nice to do’s.” Dealing with all exposures regardless of priority can be an overwhelming task for you and the client. Depending on the extent of exposures found in the identification process, you may decide to address all of them immediately or to work on them incrementally.
While some insurance people may see insurance as the only means to handle risk, there are other means that may make more sense, take less effort, and/or cost less for the client. By identifying these alternatives, you again set yourself apart from your competitors. Your clients see you as someone who is looking out for their best interests, not simply trying to make a sale.
Risk control capabilities can be extremely helpful in the identification of exposures and the development of alternative solutions for handling them. Risk control options include:
• Risk avoidance—Eliminating the exposure.
• Loss prevention—Taking steps to prevent losses by breaking the sequence of events that usually causes an accident or injury to occur. While prevention does not eliminate the possibility of loss, it helps to control the frequency of losses.
• Loss reduction—Reducing the severity of a loss that does occur.
• Segregation, separation, duplication—Segregating high-risk activities, separating values, or creating backup systems to limit potential loss.
• Combination—Combining the techniques noted above.
• Transfer of risk—Usually involves contractual risk transfer by shifting risk to others. The risk continues to exist but is assumed by someone other than the insured.
If your agency does not have a risk control department, you can use the services of your carriers or use third-party consultants. If you decide that this strategy will help differentiate your agency, consider creating a separate risk control department.
Most agencies’ expertise lies in writing standard insurance policies to cover standard exposures. Options include guaranteed cost programs and loss-sensitive programs. To ascertain the appropriate alternatives for a particular client, consider these factors:
• Size of risk
• Exposures to be covered
• Predictability of losses
• Client’s risk tolerance
• Insurance marketplace
Many accounts have a broader range of alternatives than most agencies usually bring to the table, mainly owing to lack of knowledge as to what those alternatives are. Clients like to have choices, and your ability to bring different alternatives to the table enhances your professionalism.
Cost of risk
A key consideration in risk management is the cost of risk. Premiums are only one factor in determining cost of risk. Other considerations are:
• Other out-of-pocket costs, e.g., deductibles, etc.
• Risk management department cost—risk manager, claims department, risk control department
• Other costs-third-party safety consultants, actuaries, other TPAs.
• Indirect costs—For every direct cost, there is a corresponding indirect cost that is not budgeted and often is never contemplated. Most estimates indicate that indirect costs are three to seven times direct costs. If they are left out of the equation, you can miss an important aspect of calculating cost of risk.
Clients who do not have a separate risk management department still have personnel responsible for administering insurance, handling and submitting claims, managing risk control activities, etc. Don’t get hung up on a formal risk management department when looking at these associated costs and therefore discount their existence.
Be sure to explain to clients the importance of indirect costs because many don’t understand the concept. If premiums from year to year are the only costs your clients see, they are not getting a full picture. An agency that is knowledgeable in developing and explaining cost of risk has little competition!
As agencies and producers attempt to find ways to differentiate themselves from competitors, the understanding and use of risk management concepts can clearly set them apart. For those interested in understanding more about risk manage-ment, there are several resources such as the Risk and Insurance Management Society (RIMS), Certified Risk Managers International (CRM), and other educational and professional organizations. *
David McKinney, CIC, CRM, CSP, ALCM, is an account executive for IMA Financial Group in Wichita, Kansas. He is an instructor in the Certified Risk Managers (CRM) program as well as the Center for Management Development at Wichita State University. He currently handles the marketing and servicing of biofuels-related accounts at IMA. For more information on CRM, go to www.thenationalalliance.com.