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    Risk Management Street-Smarts

    Most people think insurance is complicated.  It is.  The bigger subject of Risk Management even more so.

    But, like all big issues CEOs, CFOs and GCs deal with, it has to be understood at a high level, broken into parts, and managed through delegation.

    These are the components:

    1. Control Losses
    2. Manage Contracts
    3. Manage Insurance Brokers
    4. Negotiate Insurance Terms
    5. Know the Psychology of Risk



    Control Losses

    This is a core principle. Ignoring this and trying to insure the inevitable losses is a losing strategy.

    Loss frequency causes an insurance pricing problem; taken to an extreme, it causes an insurance availability problem. Loss frequency and loss severity causes an insurance availability crisis.

    Breakdown exposures  into categories and make sure they are being addressed by the parties you designate.  For example:

                Cyber  — your IT department in conjunction with outside security experts

                Property/Liability – insurance company loss control inspectors, fire     departments

                Workers Compensation – OSHA, loss control consultants

                Employment – HR department and outside legal advice

    Rather than trying to insure your way out of the problem, see why it can be even better to retain some of the losses Embracing High Deductibles Can Be Smart Risk Management


    Manage Contracts

    Contracts interact with the terms of your insurance.

    Parties transfer responsibilities in the following areas:

        1. Indemnification
        2. Insurance requirements
        3. Limitations and waivers of liability

    What’s in your contract can void your insurance or subject your insurance to losses you should not assume.  On the flip side, you can protect your company and your insurance from claims.  You do care about your insurer because claims paid affect your cost starting at the next renewal. 

    Please see Protect Revenue, Assets, Reputation


    Manage Your Insurance Broker

    No matter how much you like your broker, understand the broker’s role.

    Be savvy in dealing with the insurance world and know every party’s agenda and expertise.  Keep the following points in mind:

        1. Brokers, like many in business have a conflict of interest. The conflict is between the need to sell and the actual protection in the policy.  Insurance is not a commodity – in fact the opposite.
        2. Brokers, like all in business, want to minimize competition. They engage in market blocking.
        3. They don’t really know what’s in the guts of the insurance policies they market. That’s not their job!

    Please see Broker of Record Letter – Should You Sign  and  How the Insurance Industry Hides and Protects Their Bottom Line


    Negotiate Your Insurance

    “Negotiate” implies that insurance terms are not take-it-or-leave-it.  That is true, and to the extent that is true depends on your size and assertiveness (like any other contract negotiation).

    Insurance policies are many pages because they are complicated, sometimes convoluted, and they are written by insurers who are protecting their bottom line.

    Be street-smart and be aware of that.  Buying a policy without knowing what’s in it is like walking down a dark alley drunk with music blasting in your head- phones.

    Get more detail on the coverage negotiation process: Improve Coverage


    Know When Your Own Mind is Fooling You

    This has been studied by many scholars over the years.  Being street-smart is knowing when your mind can be playing tricks on you!  Follow up on this fascinating subject here, and stop and give a second thought to your original impulse: The Psychology of Risk – Don’t Let it Pervert Your Insurance Choices


    Have a risk manager on your side

    The largest companies have entire risk management departments reporting to the CFO.  You need risk management too.


    (c ) Licata Risk & Insurance Advisors, Inc. 2022

    Frank Licata

    mailto:[email protected];   617.718.5901

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    May 07, 2022

    Licata Risk Licata Risk & Insurance Advisors, Inc.
    265 Franklin Street
    Suite 1702
    Boston, MA 02110
    617-451-2140   advice@licatarisk
    501 East Las Olas Boulevard
    Suite 300/200
    Fort Lauderdale, FL 33301
    LicataRisk Advisors is an independent risk management and insurance consulting firm. We are not brokers and we do not sell insurance. We are not connected to any insurance company or product in any way and do not receive commissions. This is an important difference as you will have an expert on your side who is only committed to you.

    Licata Risk is not a law firm and does not practice law. General advice and contract input by the consultants, including those who are attorneys, is to provide insight into the risk and insurance aspects. Your attorney should be the final authority on any legal matter.