GDP Blog

Risk report: identifying uninsurable risk

Posted by Seth Denson

Mar 10, 2016 3:51:53 PM


We say it to clients and prospects all the time...there are two types of risk that all companies face:

  1. Insurable Risk, and
  2. Uninsurable Risk

Insurable Risk is fairly easy to identify. Why? because the insurance industry invests countless resources in marketing, sales and educational information so that you will ultimately buy insurance.  Don't get me wrong, I am an advocate of insurance. The ability to transfer risk to an outside party has provided a level of protection for most companies for decades; however, what we find is that in most cases when risk becomes reality it's not the insurable risks that business face that ultimately lead to their demise; rather the uninsurable risks that often times go identified and thus not made a priority of focus and attention.

 

 

Inside of every organization, multitudes of uninsurable risks are lurking – sometimes under the surface, but in many cases in plain sight.  While every organization is unique, the following are examples of 3 key uninsurable risks faced by most organizations; however these examples are just the tip of the iceberg of what risks may be facing you and your organization.

 1) COMPLIANCE RISK

Compliance has been that evil monster under the bed for most organizations since the mid-twenty first century. The problem is that for most organizations, rather than facing the monster head-on, they just stay in bed and hope that daylight will come in the morning.  The reality is that in the last 30 years, the actual risk of non-compliance has consistently grown as new regulations have become part of the every-day business ownership.  No longer are organizations just concerned with things like ERISA and OSHA compliance but now have laws like the ACA (Affordable Care Act) that have brought a whole new era of compliance burdens.  Unfortunately, there are limited options for non-compliance penalties to be transferred to an insurance company and the overall financial and in some cases criminal impact for non-compliance to an organization and its leadership team is extreme.  In many cases employers don’t even know all of the areas where they are not compliant – it’s the old adage that we say here in our office all the time: when it comes to compliance, most employers don’t know what they don’t know.

2) REVENUE RISK

As part of our annual risk assessment/workshop with our clients, we ask the simple question – “If the income faucet turned off today, how long would your company survive?” While it may seem like an obvious question that every business leader should be thinking about on a regular basis, it’s one of the most overlooked and non-addressed risks facing most organizations.  We find that in most organizations we talk to, there’s no written strategy in place to combat a loss of income, but the reality is that this is a serious risk that EVERY organization faces.  As a business owner, I remember times in our organizational history where the income/revenue slowed to almost a screeching halt, and the leadership team should have a written process about what steps will need to be taken to combat this risk should it occur and for how long.  In our firm, we call it the nuclear option – essentially what steps will need to be taken quickly to reduce expense and insure that the organization will survive the ‘famine’ so to speak.  Identifying and thinking about the Revenue Risk isn’t enough, we encourage you to draft out your action plan if this risk becomes reality and review it with your trusted leadership team regularly so that everyone is on the same page.

3) CULTURAL RISK

We have a saying in our office – “Employees are staying with you for the same reason that they will ultimately leave you”. As is the case in the other topics we have discovered, there isn’t insurance to protect your organization from a mass-exodus of employees.  The time and expense that goes into replacing your most valuable company resource – your human capital – is vast and many times can cripple or in extreme cases cause companies to go under.  Our employees should be our most important client.  As a business leader, I must sell my employees on their importance to our organization and our company’s importance to them.  This is not a ‘one-time-closer’ rather an ongoing selling arrangement.  Going back to my original statement, companies that are at the highest risk in my opinion, are those that don’t value the culture that they are creating.  Culture isn’t a single-faceted word either.  A bad employee culture is more common as a good one; however, what we have found in most cases is that when a good culture exists, the companies that have them are able to retain their employees for a much longer period of time, but also have a much more productive and cohesive staff which ultimately has a significant positive impact on an organization.  Again, employees will leave you for the same reason they are staying with you – if it’s because of money, then eventually someone will offer them more and they will leave.  If it’s because of a stellar benefits package, eventually someone will have a better one and they will leave; however, a good culture is hard to replicate.  If you are naive enough to think that culture isn’t a risk in your organization, get ready, because eventually your employees will find a better one outside of your company, the Red Sea will part, and the exodus will begin.

 

As stated earlier, these examples are just a few of what could be many uninsurable risks facing your organization.  And while we have identified these three sample risks, there also need to be an action plan to manage them more effectively…this is where an Advisor comes in.  In my carrier, I’ve come across many consultants who have been very good at finding problems, but an Advisor not only identifies the problems, but also provides an action plan to manage them.   In order to better identify what risks are specific to your company, you must first do a complete review and ask some very specific and in some cases difficult questions.  Over the years, our Advisors here at GDP have taken literally hundreds of CEOs and CFOs through our patented risk assessment/workshop. The purpose of this workshop is to identify quantify and prioritize risk.  Within each organization are unique risks specific to that company almost in some cases like a fingerprint.  Again, the first step in unlocking the door to success is identifying what risks you are facing.  Once identified, we can then quantify that risk, and finally prioritize a solution to minimize, mitigate or even in some cases eliminate the impact of that risk.  If you are interested is participating in our GDP Risk Workshop, CONTACT US HERE and one of our representatives will schedule a time.  If not our workshop, then do something.  Take the steps necessary to recognize the risks facing your organization, but don’t just do it once.  A continual risk assessment is necessary to not only gauge the success and improvement but also realize that risks are ever emerging and in order to properly protect your organization, you must be willing to identify them.  Identification is the first step – don’t just recognize the monster under the bed, but develop a strategy to face it head on so that you and your organization will be successful and survive the sometimes long nights that lie ahead.

 

 


 



 

Topics: Risk Management, Culture, Strategy, Compliance

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