How Top 100 Firms Impact Business Risk

Many members of the Insurance Journal Top 100 have at least one business objective in common. They all understand the importance of impacting their client’s business risks. These include not just the hazard risk but also financial, strategic, operational and human capital risks a business of any size faces.

Our firm developed the idea of Business Risk based upon the concept of Enterprise Risk which many of you have read a great deal about. The issue with Enterprise Risk is the fact that it does not translate effectively to accounts of all sizes as it contains risk financing and risk shifting tools that are not available to most upper middle market accounts (i.e., derivatives, high self funding or internal cost allocations). It is important to note that while the risk shifting tools are not available to these accounts; their Business Risk is still very real.

In order to understand Business Risk it is critical that you first recognize the key risks that your clients face. In these instances the definition of “risk” takes on a whole new meaning. It goes well beyond the idea of hazard risks. In fact, when asking a chief financial officer about risk you are likely to hear about investment opportunities, hiring expansion, equipment purchases or profit erosions. None of these items are addressed primarily by hazard risk (i.e., insurance transactions).

Here is the key to Business Risk; the ability for your firm to mitigate or fund these risks, not remove them. Using the ability of impacting a client’s Total Cost of Risk, an astute broker is able to demonstrate how their firm improves a client’s profitability, productivity, competitiveness and human capital expenditures.

So, how does a forward thinking Insurance Journal Top 100 firm consistently impact a client’s Business Risk and create a quantifiable value proposition? They use specific resource capabilities that reduce a client’s costs.

For instance, let’s say a firm has reduced a client’s costs by $100,000 through the application of resource capabilities. What have they really achieved on behalf of their client?

Financial Risk — They have improved a client’s profits by $100,000.

Operational Risk — They have provided the client with $100,000 of investment capital that improves productivity.

Strategic Risk — At a 10 percent profit ratio, they have provided the client with the equivalent of $1 million which allows them to be more competitive against their own competitors.

Human Capital Risk — In most cases the cost savings are generated through the reduction of indirect loss costs. These indirect loss costs in many cases involve people, time and expense.

As I mentioned, many Insurance Journal Top 100 have adopted the ability to impact Business Risk as a key part of their growth and retention strategy. Here are some key issues concerning the successful execution of Business Risk mitigation and funding:

1. Their producers understand a client’s business. While many brokers talk about understanding a client’s business, most are simply talking about how the insurance policy applies itself. These producers are well versed in a client’s business challenges, cost structures and future goals. They apply their value proposition as the vehicle to help solve these client issues.
2. The firms have invested in resource capabilities. It is through the application of resources such as claims management, risk control, specialty resources and industry specific resources that a Top 100 firm is able to actually create an outcome for a client.
3. They create quantifiable value. Through the delivery of a quantifiable Stewardship Report, these successful firms demonstrate their impact on Business Risk and how they have improved a client’s business model. This becomes the benefit to the buyer.

Many members of the Insurance Journal Top 100 look to the application of Business Risk mitigation and funding as a key element of growth and retention. They understand that due to the changing nature of business and their key risks, it is important to stay relevant to clients. By addressing and funding business risks they are able to assure themselves a relevancy for many years that is not dependent on the whims of the insurance marketplace.

Topics Commercial Lines Business Insurance