RISK MANAGEMENT

After last summer’s floods, assessing the risk to businesses from the weather is likely to be taken far more seriously than perhaps it once was. For those caught unawares, it has been a salutary reminder that risk is all around us, often bringing the biggest consequences when it is least expected. For those who take risk management seriously, the rewards come not only in reducing the risk of disaster but also in reduced insurance premiums.

Imagine being an insurance underwriter with hundreds of renewal forms landing on your desk. Some will look tatty. Most will provide the barest of details. Few will stand out for presenting the information in such a way that it proves they are taking their level of risk seriously. Providing the evidence that proves you have identified and are managing your risk is a differentiator; it makes you stand out. If you can show you have the processes in place to manage and reduce your risk, the underwriters and insurers are happier and that leads to better premiums.

You need to approach the renewal process with the mindset of impressing your broker who in turn will impress the underwriter. If you approach it as an administrative nightmare that you’ve got to get through before your holidays you won’t present your risk management in the best way possible. Don’t forget, as a client of BiB, we will be at your side advising you of the best approach at all times.

The first step is to identify where any risks might lie and then to take steps to reduce the probability of them happening, which in turn reduces a business’s exposure to claims from staff or visitors. By doing a risk analysis companies can work out the probability of something going wrong set against the consequences. For example, a lawyer giving incorrect legal advice may have a low probability but the consequences could be catastrophic. This will help you start to prioritise where to put your risk management effort. Risk can not only be managed, reduced or transferred. It may not be possible to eliminate it entirely, but it is possible to control it with sensible steps.

Firstly, establish a framework of procedures, then show how those procedures are implemented and that you are continually learning from them and revising them where necessary. It is about showing continuous improvement in managing your risk and demonstrating that you are taking steps to continually improve your firm. Good risk management does equal lower premiums because it reduces your exposure to claims, but what information you provide and how it is presented is critical.

The seven key principles of risk management:

One person must understand the risk profile of the whole team and appreciate the risk;

The ‘risk manager’ must maintain the team’s risk register;

Responsibilities for delegation and supervision of work must be clearly established;

Supervisors must understand the operational risks;

Early warning systems must be in place to alert supervisors/managers/team leaders to emerging problems;

Effective internal controls and written procedures must be in place and reviewed to minimise risk occurrences;

Feedback mechanisms must be in place to inform the ‘risk manager’ about risk occurrences.

It is not just businesses that need to risk aware. Many business owners and senior managers find themselves volunteering to help local charitable organisations, be it village hall or educational trust. Being answerable for an organisation like this on a day to day basis is an extremely responsible position to be in, and not one to be taken lightly. In these litigious times the risks become even more significant; the best advice that can be given is do take care. The difference between a successful charitable organisation and an unsuccessful one can be the difference between managing the risks involved and not doing so, the consequences of which can be potentially catastrophic.

The cost of managing this risk is also an important issue as monies hard earned pounding the streets can also easily be frittered away on costly and in some cases unnecessary insurance. The risks on a day to day basis can be many and varied, from being sued for injury to the public or volunteers to damage to the environment or other people’s property. There are other, perhaps less obvious, risks that can be managed but which can significantly affect the organisation if something does go wrong. What happens if you are having a fund-raising event, barbecue or fair, and something outside of your control goes wrong? You might ask how were you supposed to manage such a risk? A potential answer is insurance, as most of these risks can be insured.

Risks should be reviewed regularly and, if possible, avoided by change of custom and practice. If such a change is not possible then you have to manage the risk and, if possible, transfer the risk so that the consequences may not fall on the body or individuals. A very good source of independent advice on risk transfer can be an insurance broker who, with no formal ties to one insurer, can usually trawl the insurance market for the best arrangements available for the charity and its officers. A risk that can bring the most serious consequences is that to Trustees, who often do not understand the complexities of their responsibilities. They might ignore this as inconsequential, but those that have been taken to task know how important it is to take these responsibilities seriously.

In a recent case, Trustees of a village community organisation were personally held responsible for vandalism to adjacent properties. The fact that they were “assured” they were not responsible from the outset is no defence. Similar areas of concern include alleged defamation by a member of the organisation, breach of authority, trespass and denial of access. All of these risks can be managed with an appropriate Trustee’s Indemnity or Directors’ and Officers’ Insurance. Saving money on risk management and insurance can be significant false economy and the fall out from doing so is potentially catastrophic. However, many local charitable organisations may not be reviewing their costs on a regular basis and, in some cases, may be paying more than they need to.

Again, it is about showing an insurer that risk management is being taken seriously. Actions that can reduce the cost of insurance include improved security, better management and safety practices and even accepting a bigger excess in the event of an incident. These opportunities, and others, can usually be identified by working closely with BiB who will give you honest advice as and when it is relevant. Insurance, like many other areas of modern day life, has changed significantly over the years. It is often the case that charitable organisation’s insurance arrangements have been in place for some time. It is advisable periodically to look at the arrangements and make sure that the organisation has the most appropriate and cost effective insurance solution to risk management that is available at the time of renewal.

Above all, the best risk management advice available is to expect the unexpected.