Welcome to the first installment of The Banker & The Broker, a recurring blog from Commercial Risk, Insurance & Benefits Advisor, Terry Greene. After nearly 20 years working in finance, Terry brought his talents and immense understanding of business needs to Wedgwood Insurance in Septemeber of 2017. Since then he’s been helping local businesses of every size identify their risk and then designing an insurance and risk management solution. So what is Risk Management? In this blog, Terry will break it down.
But first, some background…
Prior to the start of my career in the insurance industry, I spent almost 2 decades in the world of Commercial Banking. During this time, I held numerous roles involving sales management, administration, and credit adjudication to name a few. I managed portfolios that ranged in size from new start-ups to large complex corporate entities.
When I reflect on my time in that industry I recall one common theme and belief that was ingrained in all of us bankers, we were experts in risk management, or so we thought. As a Commercial Banker, we analyzed our client’s sales trends, working capital, cash flow models, accounts receivable, accounts payable, inventory, equity positions, all in an attempt to assess their financial health and strength. At each client interaction, we focused on balance sheets and income statements to educate our clients on the importance of financial performance as it relates to the future success of their company.
Soon after embarking on my new journey in the insurance industry, the reformed banker in me realized that what I once considered in-depth risk analysis and risk management was missing one crucial factor:
Not once did a client’s insurance and risk management program enter any model we used to determine the strength of a company moving forward.
There were no discussions with clients or within our internal channels concerning insurance coverage or risk management programs. Not once did we focus on whether or not an appropriate risk management program was in place to ensure the business can survive in the event of a catastrophic loss.
In reality, the banker and the broker analyze risk in two different manners to answer the same question: what is the probability of a loss? That said, based on my experience as a professional in the financial services industry who has worked closely with business owners I would like to provide some ongoing in-depth insight to entrepreneurs on the subject of Risk Management through the eyes of both a Commercial Banker and a Commercial Insurance Broker:
For most entrepreneurs, your business is the most valuable asset you own, and ensuring its continuity is extremely important.
As a business owner you have spent countless hours, and many sleepless nights, developing products, identifying markets, securing capital, building infrastructure, negotiating with suppliers and managing cash flow. This was all done in an effort to turn your dreams into reality and secure your family’s financial future. The success you have achieved has allowed you to enjoy weekends at your cottage in the country or winters at your vacation home in Florida. You enjoy traveling the world and reaping the benefits of your hard work. You envision your future retirement with the hopes of transitioning your business on to the next generation. You have done it, life is good.
Then it happens
A fire destroys your building, a flood at your warehouse renders your inventory worthless, your specialized processing equipment is damaged beyond repair, a waste oil tank on your property leaks and contaminates a nearby water system, a company owned vehicle is involved in a fatal automobile accident, your business is the victim of a cyber attack or you are personally named in a lawsuit of a terminated employee.
Suddenly you are once again encountering those sleepless nights asking yourself; How could this have happened? Do I have the appropriate insurance coverages in place? Will my business survive? How will this impact my family’s financial future? Is my life’s work lost?
This is not a fictitious story but the probable reality for an entrepreneur who has just suffered a catastrophic loss in their business. Various sources indicate that upward to 40% of businesses fail to reopen after a disaster and upward of 50% of those that do resume operations will not survive long term because of the impact of the loss sustained.
Inevitably, these business failures and the resultant loss of a lifetime of hard work can be attributed to a number of common factors including a lack of or miscalculation of your insurance coverage, or a lack of preparation, planning and risk management advice.
Whether you haven’t made the time, are not sure how to proceed, or just don’t want to think about it, you are like many business owners if you do not have comprehensive risk management and insurance program in place.
In most instances, you, as the business owner, also perform the duties of the risk manager and as such are often ill-equipped or lack the expertise to develop and implement an effective risk management program. This is why it is critical when selecting a broker to choose an individual whose approach is not based solely on finding you the cheapest coverage but based on providing a comprehensive risk management approach to protect your business.
So, what is Risk Management?
In non-insurance jargon, risk management is the process of making and implementing decisions that will minimize the impact on your business in the event of an accidental loss. In more technical terms, it is a five-step decision-making process that is intended to identify loss exposures and develop the most cost-effective means available to the organization in dealing with those risks. It is critical as a business owner that you understand risk management is not only about insurance. In fact, insurance is just one of many tools available to you when developing your risk management strategy.
Please stay tuned for future postings where I will provide my unique perspective on risk management including further detail and guidance on how you can develop an effective and efficient risk management program for your business. Until the next time, please remember “risk management is not only about insurance”.
Do you have a question about risk management or an idea for a future topic? Drop me a line – I’d love to hear from you.
Commercial Risk & Insurance Advisor