When you’re making that shift from selling insurance products to truly advising clients on their risk, it can be difficult to find paths outside of just insurance – after all, that’s been the bread and butter of your business.
There is a distinct difference between risk management vs. insurance. Insurance is a major part of risk management, but risk management includes many other areas of risk that can’t always be solved with an insurance product.
In fact, insurance is just one of 10 impact areas of risk that we measure. These impact areas generally apply to most businesses, and they are built into LAUNCH for risk advisors ready to move beyond insurance as a product and into insurance as a service.
The 10 impact areas of risk:
- Benefits and Retention of Employees
- Key Personnel Planning
- Perpetuation Planning
- Contracts & Legal
- Business Continuity
- Current and Emerging Risk
How to Move to Risk Management vs. Insurance
Advisors who sell a product jump from discovery to plan presentation. Advisors focused on service and comprehensive risk management require a risk assessment meeting.
There’s that phrase again. Risk management. What does it mean, and how do you even start that conversation?
Risk management is a very broad term and can be interpreted differently among different people. The meaning can be dictated by past experiences, type of business, lifecycle of the business, etc. It is important that, as advisors, we have a way to clearly articulate what specific issue we need to discuss and evaluate with the client – the issue that presents the “risk” to the client.
Tactically, that meeting looks something like this: You’ll get all the decision-makers in a room or on a video call to go through what risks are relevant to their situation. Identify the key risk areas you want to discuss, ask a series of questions based on each risk area, and show where you can add value in each area.
The key here is to do a little homework before you are meeting with the client. Think about your target client and all the risks that could cause financial harm to their business. Organize them into categories of risk and give them a title. These become the risk areas that you can use to better identify, prioritize, and organize your conversation with the client. You want to get specific with them, don’t be ambiguous.
Let’s cover each of the impact areas LAUNCH helps you assess and measure so you can focus on risk management vs. insurance. Now, these are all going to apply differently depending on the specific characteristics of your client or prospect, but most risks or concerns from a client can be organized into one of these impact areas.
While property and casualty insurance is technically a risk management technique, it is also the foundation of any risk management program. We have found that there is just too much risk that exists in not properly managing the P&C insurance program for a client that it deserved its own impact area. This also allows you the opportunity to specifically discuss how the client approaches P&C and how they make sure it is set up correctly.
Risk management scenario: A business has underlying coverage but no umbrella policy, despite growing from two to 12 employees over the last three years. You can point out where the underlying coverage stops and what unique risks that business may face where an umbrella policy could be a solution.
Benefits & Retention of Employees
Attracting and retaining talent is a major risk in most any business right now. It’s top of mind for business owners because if you are not able to attract talent to your organization and retain top performers, your business will suffer. It is imperative for the business to understand what is important to their employees and build a benefits program that they will care about.
Risk management scenario: A company has 25 employees but has had usually high turnover the last couple of years. They also have trouble hiring full-time employees. One reason you’re able to discover is that many of the competing businesses in the area offer benefits, and you can help get a program in place for them.
Key Personnel Planning
Every business has key people. And while owners and the executive team are key people, most organizations have many other individuals that they rely on for the successful operation of the business. We should have plans in place to make sure those individuals stay at the organization and what to do if they can’t come to work tomorrow.
Risk management scenario: A business owner tells you that if their operations manager were to leave, there would be a ton of disruption in process and meeting deadlines. You help them think through an incentive program to keep that manager engaged with the business, while also implementing a training program to transfer knowledge to other team members.
What are the owner’s goals for the business? Are they looking to perpetuate the business to family members? Do they want to sell the business in a few years? The risk management strategies you recommend should depend on where the business is going in the next few years. If you don’t know what the owner’s intentions are, then how can you make the right recommendations?
Many owners do not fully understand how they can monetize the business upon their exit, and they tend to put off this conversation until it is too late to properly plan for their exit. The best thing they can do is start that conversation early and get a plan in place to optimize that transition.
Risk management scenario: A business owner is 58 years old and wants to retire at 65. They know they want to sell the business to three key stakeholders one day but aren’t sure on the valuation or how the three key employees will pay for their share. You can guide them on how to set up a phased buyout over the next 7-10 years and work alongside a Financial Advisor or Certified Exit Planner to make it happen.
Every business is subject to numerous compliance laws. These will vary depending on the business. How does the business make sure it’s in compliance with these laws? How do they stay up to date on any changes to those laws? This presents major risk to the client if they do not have the right mechanisms in place to stay up to date.
Risk management scenario: A local manufacturing plant has excessive waste that needs proper disposal. While the EPA is constantly monitoring and adjusting regulations around waste disposal, the business has been doing it the same way for a decade. Help them get a program in place to have their process reviewed annually to ensure they won’t face heavy fines by avoidable mistakes.
Employee injury not only presents a financial risk to the business but also an emotional one. No one wants to see their employees get injured. What is the business doing to drive a culture of working safely? This needs to go beyond just holding a safety meeting once a year. Driving the right culture around safety is an ongoing process. It requires you to change behavior and be committed to doing the work.
Risk management scenario: A prospect reaches out because their Workers’ Comp premium has gone up for the second year in a row due to a few accidents that raised their e-mod rate. Rather than just quote a new policy (which won’t help too much on price), you also discuss a safety program and explain how lowering the e-mod can help in a multifaceted way.
Contracts & Legal
Every business engages in some form of contracts and legal situations. It is important that the business is properly protecting themselves when it comes to the contracts they are signing. What process does the business go through to have contracts reviewed? Do they fully understand the insurance implications in their contracts? These are all risks to the business when it comes to legally binding contracts.
Risk management scenario: One of your longest-tenured clients wants to open a new line of business and partners with a local manufacturer to create a new product. However, the product they are selling carries far greater risks, and thus higher premiums. It’s important that the contract outlines who is responsible for the product working properly and that the insurance coverage adequately covers those risks.
What happens if …? This is the business continuity question we ask all the time. If a particular situation happens, how prepared are you? What will you do next? Making sure that plans are in place for the myriad of different situations that can arise in a business is key to making sure the business can minimize the impact these situations have on ongoing operations.
Risk management scenario: Ask each of your clients if they have a business continuity plan in place, from a buy-sell agreement to an internal action plan if a situation were to arise. It’s already tragic if a buy-sell agreement is needed – it can be even more tragic for the family if the buy-sell was not properly structured and they don’t get the money they are owed.
Current and Emerging Risk
The business environment is constantly changing. The risks that businesses face are evolving. What process does the business owner have in place to evaluate those evolving risks on an ongoing basis? Who is on their team that is helping them identify those risks? The better we can be at being proactive at identifying risks and putting plans in place the more prepared we are when those risks happen.
Risk management scenario: Your client has multiple CDL drivers. Their state just elected a new governor who campaigned on tighter regulations for commercial vehicle operations after a recent string of accidents. Is the business owner aware of potential changes? Do they have a plan for educating their drivers or inspecting their fleet vehicles?
Strategy encompasses virtually everything we just discussed. Taking all of that into account; what is the optimal strategy we can implement to achieve the goals of the business owner. It’s really that simple.
Risk management scenario: At your annual strategy meeting with your client, you ask where they envision the business will be in 3 years. They tell you that they are looking at a major acquisition that will open up a whole new product line for them. By understanding that this is a goal in the next few years you are better able to prepare your client and advise them on what they should be thinking about to make the acquisition process as smooth as possible.
Risk Management vs. Insurance: The Bottom Line
Now, just because these impact areas of risk are built in to LAUNCH, these don’t have to be the risk areas that you use with your clients.
As you measure what risk management vs. insurance means at your business, I recommend that you figure out what fits best in your process and with your target clients.
The important factor here is that you have a way to take a very broad conversation around risk and organize it so that you can put the right strategy in front of the client.
The more specific you can be in how you identify the areas of risk you are solving, the easier it is for the client to understand the value you are bringing to them.