The value of risk assessments

Every business leader knows they have to expect the unexpected, especially in today’s unpredictable world. However, when it comes to risks that can cause real harm — from workplace injuries and physical damage to the fallout from legal and regulatory compliance issues — no one should be caught by surprise. 

To be truly prepared, organizations should evaluate and reevaluate potential threats to their business by having their insurer conduct risk assessments. By being proactive, businesses can stay on top of risks as they emerge and evolve, and implement solutions to mitigate those risks. 

There’s no one-size-fits-all approach to risk assessments: the scope will depend on the nature of the business, and there are numerous tools, techniques and technologies that can be used. During a property and casualty risk assessment, for example, the inspector will tour the facilities (and utilize secondary sources such as questionnaires, accident reports, and more) to identify risk factors, hazards, and loss exposures that could impact the business, cause harm, or don’t comply with regulations; evaluate the potential impact of that risk; and offer recommendations to eliminate or control the risk. Most importantly, risk inspectors take the time to educate and share proactive solutions so that clients can continue to strengthen their risk management practices.

In any case, conducting a risk assessment has tangible and wide-ranging benefits. It can help a business: protect its financial security as risks are reduced or eliminated; find efficiencies to save money in the long term, for example, by enhancing equipment longevity; comply with regulations and avoid fines; and avoid potential increases in insurance premiums if recommendations aren’t implemented. Of vital importance, a risk assessment helps protect employees’ health and safety in the workplace. 

While these advantages may sound compelling, getting commercial clients on board can sometimes require convincing. For example, some clients might resist a risk inspection, questioning why they’re being asked things they’ve already covered through the insurance application. Others may not see the value or understand the recommendations from a risk assessment, or they may not have the funds to implement them. 

Additional factors that contribute to clients not proactively protecting themselves against existing and emerging risks include: the lack of a risk management framework and/or business continuity plan; not having a dedicated risk manager; and not keeping up with changing regulations, best practices, and technologies. 

These hurdles, however, don’t mean clients should close the book on risk assessments. To address their time and cost constraints, for example, companies should consider a phased approach to implementing recommendations: not all upgrades and updates need to be done at once. 

For their part, brokers can help clients understand the value that risk assessments bring to the business by sharing educational resources and discussing potential scenarios. An impactful approach is to outline in real, practical terms what could happen if the client is underinsured, and/or if they lack proper risk mitigation strategies and tactics.   

Research shows there is interest among brokers in receiving a wide range of services, educational resources, and tools from their loss control and risk inspection partners. In the Canadian Underwriter National Brokers Survey, sponsored by Sovereign Insurance, when asked “What services, education, resources, or tools do you expect and/ or want to receive from Loss Control, Risk Inspector partners?” 69% of brokers said they expect and/or want their clients to receive on-site or remote risk inspection services. This was followed by: reviewing the recommendations resulting from the risk inspection with a risk specialist (64%); broker accreditation courses (56%); tools such as accident/incident trackers, checklists and permits (52%); webinars and panel discussions (52%); articles, blogs and bulletins (42%); and whitepapers on emerging risks. 

The survey also found that 31% of brokers are likely or very likely to use a third-party inspection service to help their clients evaluate and mitigate risks to their business, compared to 23% who are unlikely or very unlikely. While these results seem to indicate that brokers see the value of risk inspections for their clients, surprisingly, nearly half (47%) said they are neither likely nor unlikely. This indifference indicates there may still be some work to do within the industry to promote the value of risk inspections and raise the awareness of their immense benefits. 

Brokers, too, have a lot to gain when a client undergoes a risk assessment. An assessment can: reduce claims for the insured; keep the insured marketable, both for their existing carrier for future renewals and/or for future carriers; help keep the insured’s premiums and deductibles down; and help keep the Insured and their employees healthy and safe. 

Ultimately, risk assessments speak to the heart of the insurance business. They embody the value of risk recommendations and documentation and reinforce the value of the client-broker-insurer relationship — and it’s everyone’s job to proactively mitigate risk.