As we’ve noted on numerous occasions, the process of identifying risk remains the most important step in the risk management process. If you don’t identify a risk, then you have no ability to assess, or develop strategies to manage those risks. A business owner can utilize a number of tools to help identify risk.
Over time we will highlight those tools, beginning here with applications.
There are many lines of coverage that require renewal applications annually, and in some cases depending on the industry, there are supplemental application that take a deeper dive into the exposures. While nobody celebrates having to complete insurance applications, business owners and organizations should view the completion of these applications as an opportunity to (1) confirm the information they are providing the broker is accurate and thus their advice and consultation are based on reality, and (2) identify risk.
The concept is actually quite simple, if the insurance company is asking a question, there is likely some exposure tied to that question. In our experience, insurance companies don’t typically ask useless questions, allowing of course for the fact that some applications may have not applicable sections. If they are asking a relevant question to your operations, use that as an opportunity to think about the risk associated with that question, as part of your risk identification process.
Example #1: Crime Application
In this crime application, the carrier asks 4 questions about the hiring/vetting process of employees. Clearly this carrier believes crime exposures can be mitigated by proper hiring, background checks, and other measures. If you are identifying risk, employee theft should make the list and be addressed according to the risk factors.
The application also asks a number of questions about the accounting controls in place, again highlighting areas where there would be a risk to a business. The carrier wants to know if you have a different person reconcile the accounts and do the daily accounting functions. Such consolidation of these duties might eliminate critical checks and balances, and seeing this on an application we can identify that risk and take steps to manage it.
Example # 2: General Liability Roofing Supplemental
In this general liability application, we have an industry specific supplemental for roofing contractors. The first thing to stand out is the question wanting to identify the type of roofing being done, whether it be asphalt shingles, metal, or torch down. Even if we know nothing about roofing, we have to assume there are different risks associated with the different types of roofing, and you should identify those and act accordingly.
The carrier asks if there is a formal safety program. If I’m operating a roofing company, and I see that question and do not have a formal safety program, I probably want to think about putting one in place. Risk identification.
Example # 3: Standard ISO Acord Application
Even with your standard Acord application, there are going to be property and vehicle schedules that need to be reviewed to confirm the information is accurate. Certainly identifying a vehicle in your fleet that wasn’t an insurance policy would be a pretty good case of risk identification.
Next time you have to complete an insurance application, you should use it not only as an opportunity to make sure the information on your business is accurate, but integrate that application into your risk identification process.
For more tools on identification of risk contact one of our risk management professionals at (907) 274-4142 or [email protected].