April 6, 2020

4 Key Components of an Insurance Risk Analysis for Your Company

insurance risk analysis

As your organization grows and changes, is your insurance coverage keeping pace? One way to be sure is through an insurance risk analysis. This comprehensive evaluation allows you to determine what exposures the business is facing so you can decide whether to accept a specific risk or take steps to prevent or minimize it. Here are the four key components of an insurance risk analysis:

1. Interview Key Employees

Talk to those employees who know your business best. Find out what changes are taking place and if there are any new, increased or reduced exposures. Ask for insights on:

  • Building Updates or Expansion
  • New Vehicles or Equipment, including changes in values
  • Revenue Improving or Declining
  • Staffing Changes, including leadership team
  • Product and Service Offering Changes
  • Inventory Changes

Changes in your business may require different limits or coverages. The more information your insurance broker has, the better equipped he is to negotiate your insurance premiums.

2. Review Business Documents 

These are some of the key documentations that help insurance brokers fully understand your risk and ensure there are appropriate coverage and risk transfer mechanisms in place:

  • Organization Chart
  • Recent Financials
  • Contracts and Leases
  • Insurance Policies

3. Identify Key Areas of Risk

Every business, regardless of industry, faces different risks at different levels. Assess threats or risks most likely to occur based on your company’s history, location, physical structure, operational and technical infrastructure, regulatory requirements, and other factors.

  • Disasters – Manmade or natural disasters are certainly areas for exposure. Everything from tornadoes, hurricanes, floods, earthquakes, lightning strikes, wildfires and explosions to industrial accidents, chemical/hazardous material spills, communications and utility outages, system disruptions and transportation accidents should be considered.
  • Malicious Attacks – Some of the major concerns today are active shooter incidents, cyber and employee theft. You can also suffer from threats to your business reputation (off- or online), protests, civil unrest/riots, terrorism, bomb threats, vandalism, robbery and armed intruders.
  • Workforce Loss – Consider the likelihood of losing staff due to long-term disability or illness, epidemic (e.g., flu, coronavirus), fatalities and worker strike.
  • Kidnap & Ransom – If your employees are traveling internationally, this is an area of increasing risk.
  • Human Error – While not necessarily malicious, poor training, poor maintenance, carelessness, misconduct, substance abuse and fatigue can all lead to human errors and increased risk.

4. Assess Current Risk Controls

Evaluating current controls and determining if they are enough is the final step in a comprehensive risk analysis. There are several areas worth assessing to ensure adequate strategies are in place to reduce or manage risk.

  • Loss Control and Safety Procedures – Do you have a safety program? Are employees provided with job training? What measures are in place to protect your company and employees?
  • Hiring and Human Resource Practices – HR can implement a variety of practices to prevent or mitigate risk. From hiring/vetting processes like background checks and driver’s motor vehicle record reviews to employee training.  
  • Cyber/Data Security Measures – How are you handling sensitive information? What cyber security measures are in place? Do you have cyber liability insurance to cover the expenses if you suffer from a data breach?
  • Lease and Contractual Agreements – A written agreement can help avoid misunderstandings, surprises and legal proceedings. Work with your lawyer and insurance broker/risk manager to identify and eliminate language that can increase your exposure.
  • Disaster Recovery/Emergency Preparedness Plans – Do you review your plan on a regular basis to ensure it covers all potential disruptions, beyond natural disasters? This practice will help your business recover and resume operations quickly and efficiently.
    • Business Continuity – Review your continuity plan to ensure your business can continue to operate in the event of a loss of any critical operations. Explore business continuity insurance if not already part of your insurance coverage.
  • Claims Monitoring and Analysis – What protocols and best practices are in place, or could be enhanced, to avoid or minimize the historical claims you’ve experienced? Is your underwriter or insurance broker claims representative advocating on your behalf?
  • Insurance Coverage – Evaluating insurance coverage needs is a key factor in managing risk. Your insurance broker should explain all options to you so that you can make informed decisions based on your specific coverage requirements and risk appetite.

For more information about risk analysis, contact your local risk and insurance representative or a member of our team.

Related Resources:

What to Expect from a Comprehensive Insurance Audit
Building a Culture of Safety
Ensuring Your Business Is Prepared for Disaster
6 Steps to Minimize Business Interruptions

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