As a manufacturer, it can be difficult to calculate the cost of losses and the degree of risk. If your business is faced with a product recall or downtime of machinery, are you equipped to keep trading without incurring loss of revenue, customers or reputation?
What is a Risk Management Programme?
Total cost of risk is an insurance term describing the cost of both pure and speculative risk. Additionally, it is synonymous with price: the price of your risk management programme. Some components of cost of risk are easily identifiable, such as insurance premiums or loss of production costs, whereas loss of reputation or market share is more difficult to quantify. Establishing and maintaining a risk management programme aims to decrease your total cost of risk, by helping to achieve the following:
- Analyse your exposure to risk
- Implement control measures to these exposures
- Determine risk transfer or financing options
- Manage current and future exposures
Identification of Exposures
In order to identify total cost of risk, it is imperative to recognize which areas of your business are vulnerable. Aligning your risk management approach with your overall business objectives will aid the recognition of qualitative and quantitative risks against which you can aim to protect your business. The analysis of both qualitative and quantitative risks also offers a foundation for developing forward-thinking approaches to the exposures identified.
When identifying risks as a manufacturer, it helps to ask the following questions:
- What is your viewpoint on risk?
- Is your company risk-averse?
- Is your company in a financial position to take on more risk? Can that risk be transferred to another party or contractually to an insurer?
To help answer these questions, assessing your company history is useful to find patterns and to ascertain risk-taking behaviour. For example, start-ups are more likely to want to protect their financial viability as funds and cash flow is tight, in contrast to a 20-year business whose strategies and business plan may be becoming obsolete or too conservative.
Additionally, we consider norms in the manufacturing industry, your market position and competition to fine-tune your risk management solution to the changing needs of your business.
Quantitative analysis including ‘hard numbers’ and prior losses can also be used to identify trends. This data is also used to identify:
- Average incurred costs per loss
- Total incurred trends
- Fraud behaviours
Implementing Control Measures
Through pre- and post-loss control measures, Robison looks to control and reduce the cost of commercial insurance expenses, an estimated 75% of which are claims driven. Using a comprehensive loss control evaluation to implement control features such as anti-fraud tactics, employee campaigns about the effects of insurance fraud, and safety incentives for solid performance can show how an active loss control programme can be elemental to cost containment. Robison can offer comprehensive resources for your business to help you employ the most appropriate strategies to control your risks.
Next Steps
Once a risk management programme and control measures are in place, the remaining vulnerabilities of your business can be addressed. It is important to comprehend how much risk you can assume in-house and how much of that risk you should be transferring to a third party. Robison can finance remaining risks through an insurance policy as well as assisting with the transfer of risk to a third party. However, we recommend that you use a combination of insurance and non-insurance strategies to cover losses to fully mitigate your risks, using self-insured retentions as well as bespoke policies.
About Robison
Approximately 25% of businesses that sustain a major catastrophe are no longer in business within a year. If your operation is interrupted, will you have access to the professional advice needed to ensure you can continue trading? By utilising Robison’s range of insurance and non-insurance strategies, your manufacturing business could reduce the cost of your risks, as well as plan a strategy to mitigate and control risks in the future.
Robison Insurance Brokers have provided expert advice and professional insurance solutions to businesses in Hampshire and the surrounding areas since 1982, working with manufacturers to develop strategic action plans, assisting in the execution of the designed risk management programmes and maintaining low risk costs. If you are interested in reviewing your risk management strategies, contact us today on 01730 265500 or hello@robison.co.uk to speak with one of our insurance experts.
