Keith Boyer is managing partner at KMRD Partners Inc., a risk and human capital management consulting and insurance brokerage firm located in the Philadelphia, Pennsylvania, region serving clients worldwide. KMRD works to protect clients’ assets by reducing their cost of risk. Boyer can be contacted at firstname.lastname@example.org.
Two partners at a building supplies manufacturing company were exactly where they wanted to be. Their firm sold best-in-class building supplies at competitive prices. Profit margins were exactly where they should be. The firm had earned the trust of a dedicated client base. Suppliers had proven themselves to be conscientious and dependable. Key employees had embraced the company mission.
Everything seemed to be under control. Yet, unfortunately, all risks are not under an insured’s immediate control, no matter how well they plan for the future.
So, what could go wrong? Weather-related events will continue dislocating supply chains and creating havoc for construction and renovation businesses now and in the future. Regrettably, man-made events in the form of malicious cyber events are also rising, with no real end in sight. Meanwhile, disaffected individuals seem likely to continue perpetrating active shooter incidents in the future. And of course, a fire or explosion at a critical supplier’s factory can also set off a supply chain disruption in your business.
Because contingent risk from events will always be lurking, it is important for companies like the one started by the two high school buddies to work with professional risk managers, folks who may not be able to see around the corner, but at least can prepare you for what lurks there. It is professional risk managers’ everyday job to recognize and properly measure risk. They can effectively communicate the benefits of anticipating and planning for contingent events. They can also determine the best way to transfer contingent risk to insurance products.
The following are a few potential contingent risks to look out for—and how a professional risk manager can provide valuable guidance before an event occurs.
1. Fire Damage
A fire races through a critical supplier’s plant, resulting in closure. By advising the insured about the importance of having multiple suppliers, the economic impact following such an event will be muted. It isn’t a matter of not trusting a valued supplier who appears able to meet your company’s every need; it is simply a matter of risk management. By doing the work up front, a company will have the option of calling upon multiple suppliers located in different geographic regions to help remove the risk from unwelcome surprises. It is about knowing your supply chain, and who has unused capacity and can support you in your hour of need.
2. Shortage of Materials
A weather-related event deprives a supplier of crucial raw materials. Although weather is famously unpredictable, it is reasonable to expect volatility at predictable times of the year, such as hurricane season on the Atlantic Coast. A professional risk manager will advise the insured to increase inventory prior to potentially volatile seasons, and to source multiple suppliers located in different weather theaters. The risk manager can also recommend the insured expresses his/her concerns to critical suppliers regarding potential weather events; requesting contingency plans. Simple measures performed before an unwelcome event occurs can often prove to be the most effective path to sound risk management.
3. Workplace Violence
As evidenced during recent terrorist events, such as the Boston Marathon bombing in 2013, disaffected individuals can bring all economic activity to a standstill following a “terrorist” event. Because insurance agents are trained risk managers, they can advise insureds regarding enlightened risk management. Is the client conducting contingency exercises with staff on a periodic basis? What if the office must remain closed for a number of days? Are business continuity and disaster recovery plans on file and practiced in a “tabletop” format? Are they accessible, and can they be executed from a remote location? Is there "Business Interruption" and "Extra Expense" coverage available in the event of a shutdown?
4. Loss or Suspension of Client
A catastrophic event causes an insured’s largest client to suspend or even cease operations. A properly trained professional risk manager will also act as a business consultant to the insured. Although there is no insurance coverage against weighting a business too heavily towards one client, this does represent a clear case of business risk. A professional risk manager can seize this opportunity to advise the insured regarding the risk. The risk manager can also call on a network of professional business consultants to advise the insured regarding new business efforts.