Sometimes it’s important to go back to basics. As an insurance agent, reviewing the fundamental principles of risk management can help guide you. These basic ideas help you when advising your clients about how to manage and mitigate their risks.
While it is impossible to remove every risk and hazard, your policyholders can take many proactive steps to lower their exposures. And you can help them every step of the way. Review the basic principles of risk management to refocus your efforts on helping your clients mitigate their risk.
Basic Principles of Risk Management
Brush up on the fundamental principles of risk management now so you’re prepared for your next renewal meeting.
The first step in any basic risk management plan is identifying risks and hazards. Once you know your exposures, you can plan risk control methods to mitigate and manage the risks. But first, you need to help your client understand the various operational, financial, and strategic risks they face.
Walk through their business with them and discuss the various hazards and exposures they have. Consider new products, services, or clients they may have. Ask about any changes since the last policy renewal. As their agent, you can talk about how to insure and protect the policyholder using risk control methods.
Apply risk control methods.
Consider how you could help your policyholders apply the various risk management techniques to their exposures.
- Your policyholder may decide to avoid a specific risk altogether. They could do this by not selling a certain product or not opening an office in an undesirable geographic location. They can sell an asset that causes more risk than they are willing to accept. These are all ways to avoid risk.
- A certain amount of risk is inevitable in many cases. You can help your client understand they may need to accept a low level of risk inherent in their product or services. They can be proactive through quality control measures to reduce their risk as much as possible — then accept the remaining slight possibility of error.
- Reduce or control. Reducing or controlling the risk means reducing the likelihood of an event or controlling the severity of damages if an accident does happen. You can help your policyholders put controls in place to detect incidents before they happen, or when an accident is imminent. Consider leak detection systems or early warning control systems.
- The fourth technique is transferring risk. When you cannot avoid, accept, or reduce the risk, transferring it to another person or entity is the next option. This is usually accomplished through an insurance policy — or reinsurance for carriers. The risks your customers cannot afford to retain should be transferred through appropriate insurance coverage. A contract that transfers the risk to another person or company is a non-insurance transfer method. Think about a lease that shifts responsibility for maintaining the parking lot to the owner of the building, for example.
- Finally, making copies of important records, keys, and documents and storing the duplicates away from the originals is a basic risk management method. Storing a copy of the house deed in a safety deposit box or giving your neighbors a spare key to your house are low-tech examples of duplication. Offsite document storage through a vendor is a way businesses maintain duplicate records. Using cloud-based storage is a technological way to duplicate records.
Do an annual risk review with your policyholders.
One way to add value to your customers is by offering a complimentary risk management review every year. When you renew their policy, make sure you talk about new risks and exposures they may have taken on over the last six or twelve months. Many people shifted gears with the pandemic and may have different risks that need to be managed.
Focus on proactive measures.
Don’t forget to talk about the future. Ask about your policyholder’s plans for the next year. They may be considering a big expansion or a significant shift in business practices — and they may need new insurance coverage to go with it.
By asking about their plans, you can get ahead of their insurance needs and place the right coverage for their next policy term. And consider what new products they may need when their new venture takes off. By predicting their needs in advance, you can be there to help them when they need to purchase new coverage.
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