This article is a continuation of our series on creating a new way of thinking about insurance. As you consider your business insurance, we invite you to think about this subject in the much larger spectrum of “Total Cost of Risk”. Your insurance program is more the premiums you pay
Total Cost of Risk is the sum of the costs arising from all of the risks faced by an organization. Risks can generally be categorized into one of the following three classes:
Operational– Operational Risk includes the cost of products, protection of property, insurance, damage to or destruction of supply sources for key raw materials, components, or services, injuries to employees or outside parties, damage to the property of outside parties including resulting consequential loss, damage to the environment, and employment decisions.
Financial– Financial Risk includes risks associated with commodity price variability or commodity availability, costs of capital and borrowing, customer credits, business development, profit and banking costs.
Strategic– Strategic Risk includes issues of risk that can have a major impact on the overall viability of an organization. These include issues centering on reputation of the organization or its employees, loyalty to the organization of customers or clients, development of new products or services, meeting the demand for existing products or services, and pricing of the organization’s products or services.
When you consider all your risks, it is important to understand how a well-designed insurance program can impact all these areas.
Change your Thinking About Insurance
Most businesses only look at their premiums when they evaluate insurance costs. We would like to provide an alternative view. For example, by only considering insurance premiums you are eliminating many other factors in your total insurance costs. Here are factors that make up your total cost of risk.
- Internal Risk Administration
- Legal and Claims Expenses
- Deductible Costs
- Uninsured Loss Costs
- Safety Program Costs
- Insurance Premiums
- Contracted costs
Next up; we will review each of the cost of risk areas and how they impact your overall insurance program.