April 1, 2012

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Calculated Risk

Loss Management Beyond Property Insurance & Workers Comp

Rebecca Palmer

April 1, 2012

Risk is inherent in every business venture, and most companies get loss management basics just right. Often, law requires it. You can’t pay your employees without signing up for unemployment insurance, for example, and you can’t use company trucks without having your drivers insured.

Nobody goes into business for the paperwork, though. It’s tempting to get to designing, building or selling rather than analyzing risk. You may pause for a moment when you hear of a lawsuit or product failure by one of your competitors, but chances are good that you’ll forget about your own risk in favor of paying that invoice or calling your suppliers.

You can protect yourself by giving attention to all the facets of your business that could result in a total loss, according to Utah risk management professionals.

“Thinking ‘This is never going to happen to me’ is a huge mistake,” says Kim Aitken, manager of the risk department at Moreton & Company.

Leave Your Desk
One of the biggest risk management mistakes is trying to do everything with a phone, a desk and a computer. Instead, you need to talk with your employees and see them at work. It’s about safety, says Aitken, who helped manage potential losses for the 2002 Olympic Games. For contractors, risks can include worker injury and damage to your client’s property. In offices, consider safety factors such as eyesight problems and ergonomics.

Imagine Worst-case Scenarios
Visualize the worst possible outcome of any new investment or change before you jump in, says Christian Deputy, a regional broker with The Buckner Company. Consider the climbing equipment manufacturer Black Diamond, located in Salt Lake City. The business has become one of the most trusted brands of climbing gear in the world, but staffers had to purchase it from its parent company, Chouinard, in 1989 in a leveraged buyout following Chapter 11 bankruptcy.

The trouble started when a 49-year-old climber died in Pinnacle National Monument. He fell more than 1,000 feet, but his Chouinard climbing harness was found at the top of the cliff, roped in and hanging open. The company was found to have used outdated warnings on its equipment, leaving it legally liable for the accident.

“These risks can put [companies] out of business or can cause a lot of financial pain,” Deputy says. “The size of the organization doesn’t matter. You might still be held accountable.”

Protect Your Data
Electronic risk is easy to forget, but vital to guard against, according to Aitken. Data loss or theft can hurt any business, but it’s especially frightening for software contractors and other businesses that store information for their clients, Deputy says. “Anybody that provides any kind of advice needs policies that protect them,” he adds.

Know Your Broker
Manage your risk and save your money by using the person you’re already paying for: your insurance broker. These professionals can go beyond property insurance to help you cover risks that are specific to your industry. The best insurers will also help you understand all your policies and keep an eye on changes that could affect your business. These professionals are ideal advisors to keep on hand as your company grows.

Do Your Homework
Risk management isn’t a task you can finish once and forget. Instead, you should perform assessments regularly. You also need to do research so you know exactly what your risks are. First, know your industry. Next, keep track of any scientific research, lawsuits or legislation that could change your risk profile. Finally, keep an eye on the economy. Throughout the process, keep your board of directors involved. The SEC requires it. And remember to document every step of the process.

Risk management mistakes are easy to make, but they can be fatal. Businesses in every industry need to make important decisions, even when other tasks seem more urgent. Give this issue your full attention up front, and then you can put potential losses in the back of your mind while boosting profits and growing your company.

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