Implementing An Effective Risk Management Plan Begins with Senior Management
An effective corporate risk management program starts with senior management support and involves communication at all levels throughout the organization. With support from upper management, employees understand the importance of managing risk and the financial consequences of improper risk management. Everyone in the organization is encouraged to assess risk and find ways to mitigate it. Furthermore, effective communication of this support is critical, allowing for the identification of risks and the ability to categorize them as operational, financial, strategic and hazards.
Another important component to risk management involves the location of key facilities of an operation and assessing the likelihood of natural disasters in specific regions. For example, the Fukushima incident in Japan interrupted supply chains for many U.S. companies. The Gulf Coast and other areas of our country have been hard hit in the last decade by hurricanes and tornadoes. The realization that exposure to very serious damage, property losses and business interruption is tied to location has focused U.S. companies on their locations and those of their direct and indirect suppliers. Be sure disaster planning is a key element of risk management planning when talking to insureds.
Moreover, directors and officers of a company should be advised on how risks are being managed. More and more board members want to discuss these issues at high-level meetings. One of the driving forces for this is growing litigation against companies and their directors and officers as a result of recent major natural disasters. Shareholders are questioning why risks were not identified and how controls to prevent and manage risks failed.
Also, be sure to have a comprehensive plan for managing reputational risk, including exposures to privacy, cyber crime and social media issues. For example, while social media offers tremendous opportunities to build brand loyalty and engage customers, it also can present reputational challenges when used improperly by employees. Be sure there are policies and procedures in place.
A company, of course, should evaluate all the costs associated with risk and determine whether it’s an insurable or non-insurable risk. Alternative strategies to managing those non-insurable risks must be implemented. Those responsible for managing the risks involve internal advisors, such as chief financial officers or their risk management departments or both. External advisors, of course, include you – insurance brokers and agents with knowledge of the industry, the insurance products that address a variety of risk, expertise in alternatives strategies to insurance and claims-handling experience and claims advocacy. At Caitlin-Morgan, we can help you provide your clients with effective risk management in addition to offer specific insurance products and alternative strategies to address risk. Just give us a call at 877.226.1027.