Time will tell if the Gulf of Mexico oil spill will kill BP or just severely cripple it, but whatever the case I’ll bet they didn’t see it coming!  Will you?

It looks like this spill will be (if it isn’t already) the biggest man-made disaster ever.  The extent of the spill, the scope of damage and the resulting impacts on the environment, marine life, economies, and people remains to be seen, but catastrophic sums it up.  BP and all of the other world’s oil companies plan for spills.  They build complex risk models, examine alternative worst case scenarios, look at maximum probable losses, and they are generally very good at measuring and managing risk.  But what if the worst case scenario that you imagined turns out to be wrong?

In BP’s risk modeling they would have factored in the US government’s cap on environmental clean-up and damages at $75 Million.  Did they predict that the government would significantly raise the cap or remove it all together?   Did they predict that in addition to the significant increase in damages that their ability to earn would be affected by Obama’s restrictions on new drilling; or that taxes and royalties would be increased significantly ; or that people would boycott their products on mass?

The point is, no matter how sophisticated your risk management process, you can be wrong.  Don’t take that to mean that it isn’t worth trying!  What I’m saying is that no matter how much you prepare and plan and execute, things can happen that are worse than you could have imagined.

When it comes to company killers, all companies big or small have them lurking around and if the perfect storm happens you could be next!  So what can we do?  Most company killers are closely related to reputation risk.  Whether it’s an oil spill, a product recall, or a fraud scandal, the resulting damage to the company’s reputation is where the biggest losses are felt.  Incidents such as these rattle customer and shareholder confidence which can often lead to a rapid and irreversible downward spiral.  Reduced sales, increased costs, battered share value, employees leaving the sinking ship and on it goes until there’s nothing left to salvage.

Do not despair!  As with any risk, big or small, there are ways to manage reputation risk.  Here are a few general tips:

• Consider all underlying risks that can lead to damaged reputation, and mitigate them as best you can within your means.  Ask yourself (and your team), what things could happen that would damage our reputation enough that it will cause significant harm to your company?
• In addition to managing the underlying risk, treat reputation risk as one of your company’s biggest risks.
• Develop emergency and contingency plans that deal directly with reputation risk.  How will you respond?  How will you communicate to customers and other stakeholders?  How will you control the damage?
• Look for ways to diversify your operations enough that significant harm to one division or company won’t necessarily damage the others.
• Check with your Insurance Broker to make sure you have the necessary coverages and limits to deal with the fallout from reputation related risks.  For example, coverages such as products recall, environmental impairment and business interruption are often not carried and are seen as unnecessary, but can provide the necessary buffers in the case of major losses, so that reputation can be dealt with effectively.

All organizations need to start to understand reputation risk and realize that it is one of their greatest risks. The following are starting points to consider in managing reputation risk using a hotel chain as an example.  For more information on this and other risks, please visit the free ClearRisk Library.

Tools:

ClearRisk’s Reputation Risk Management Tool

ClearRisk Library

References:

http://www.businessweek.com/news/2010-06-30/senate-panel-moves-to-lift-cap-on-oil-spill-damages.html

http://www.foxnews.com/story/0,2933,521341,00.html

Today ClearRisk Inc is proud to announce the  launch of version 2.0 of its ClearRisk Manager application. Version 2.0  is built to improve every user’s experience. The site is faster, it enables easier collaboration and includes functionality that will allow our users who are Insurance Brokers to interact with clients in ways they’ve never been able to before.

ClearRisk Manager Version 2.0 is designed to be lightning fast. “We’ve increased the speed of the site by almost 4x,” said John Downey, Director of Systems for ClearRisk Inc “we’ve created a seamless experience for brokers; almost unnoticeable page loads and large reports take only a few seconds, unlike minutes or hours for some competitive systems.”

Clients of Insurance brokers are demanding risk management options that go beyond insurance coverage. Some brokerages are struggling with how to effectively provide these services to their clients. That’s why we built ClearRisk Manager. We want Insurance brokers to have an affordable way to provide their clients with risk management plans, risk maps and risk management resources – even if they have little to no risk management training.

Using ClearRisk Manager to help identify, prioritize and manage client risks, brokers can offer affordable risk management support to clients; helping clients get the best terms in the insurance market

We’ve built on this concept in Version 2.0, by adding more client and broker collaboration tools, and increasing the speed of the site even more. ClearRisk Manager 2.0 can be used to store, track and share all relevant risk and insurance information such as insurance policies, claims documents, and insurance certificates. It gives Brokers and their clients the ability track progress they make over time.

In addition, ClearRisk Manager 2.0 introduces functionality that allows Brokers to Co-Brand the secure online portal. It’s important for Brokers to have multiple touch points with clients throughout the year. Every time a client logs on to ClearRisk Manager to work on their Risk Management plan, the host Broker’s logo can be prominently displayed. From the client’s perspective, the Broker is providing them with a software solution comparable to those offered by only large multinational brokers. This, in combination with the collaboration tools above, shows the clients firsthand the value the Broker is bringing to their business.

ClearRisk’s focus has been on increasing broker profitability with mid-market Risk Management Solutions. ClearRisk Manager 2.0 provides brokers with even more functionality to help them become the preferred provider of risk management and insurance products and services.

The following video is a popular resource for insurance brokers who are evaluating the use of risk management as a value added service.

Top 10 ways to use Risk Management to Increase Brokerage Revenue

Come view the new functionality with a 30-day free-trial

or let one of our associates walk you through ClearRisk Manager 2.0 with a 20 min tutorial

I have always been a firm believer that good risk management doesn’t have to be resource intensive, difficult for SMBs to undertake or insurance brokers to provide to their clients. With a little formalization, structure and a strong understanding of your organization, risk management planning can be rewarding.

Risk management does require some investment of time and money but it does not need to be substantial to be effective. In fact it will be more likely to be employed and maintained if it is implemented gradually over time. The key is to have a basic understanding of the process and to move towards its implementation.  That is exactly why ClearRisk has developed its newest whitepaper: The Risk Management Process

There are many different risk management models available. Often times these models are unnecessarily complicated or written for an academic audience. We’ve developed this whitepaper from industry best practices and experience and in a way to which business people can relate.

In summary, the five steps in the risk management process are:

1.   Identify Potential Risks:
What can possibly go wrong?

The Risk Management Process

2.   Measure Frequency and Severity:
What is the likelihood of the risk occurring and if so what is the impact?

3.   Examine Alternative Solutions:
What are the potential ways to treat the risk and of these, which strikes the best balance between being affordable and effective?

4.   Decide Which Solution to Use and Implement it:
Find the needed resources, get the necessary buy-in and pull the trigger.

5.   Monitor Results:
Is your plan working? Are changes or updates required?

The whitepaper explains each of these steps in detail so you can move towards implementing a risk management plan. Click to view the free whitepaper on the Risk Management Process.

The economic downturn has presented its share of challenges for business around the world. Adjusting to the “new economic normal” hasn’t been an easy task as the broad scope of operational changes, closures and bailouts have shown. It’s been a trying time for business, but positive signs of change are beginning to emerge; strategies are being aimed at making the most of the upturn, investments are leading economic activity and strategists are identifying early increases in consumer confidence.

Edging out of the recession and seeing better economic conditions around the corner, it’s important that businesses be aware of the downside of the upside of risk!

It’s common to view risk negatively, but every entrepreneur knows that there is no reward without risk. Risk brings opportunity and is the balance between the upside and the downside. There are many changes that will come with a global economy that is on the upswing; credit will become more widely available, businesses will begin to prosper and begin hiring, business spending restrictions will ease, investments will be made in infrastructure and companies will look for ambitious growth.

As discussed in one of our blog posts from last year, the downturn has been a time for improving operations, strengthening relationships with customers and preparing to make the most of the recovery. Now that the upswing is upon us, bringing positive change and room for growth, it’s important to plan for the risks that will no doubt accompany the opportunities presented. In the upturn of the economic recession, make sure you don’t become your own worst enemy.

• Be careful not to take on more than you can handle. It’s expected that an increase in demand is a distinct possibility for many industries. Not being able to deliver or producing shoddy workmanship can severely damage your reputation. Also with this, overtaxing your capacity can damage equipment, hurt staff morale and increase injury rates.
• Do not fall victim to hasty hiring decisions. Not taking the time to plan for hiring and to evaluate the applicants fully can result in bad hiring, poor productivity, damage to staff chemistry and increased dismissal costs.
• While making the most of the upswing will be tempting, be sure that you don’t sacrifice long term relationships with customers for short term gain. Build relationships with clients founded in clear expectations, regular communication and value.
• Decision making should (always) be conducted with the organization’s risk appetite and tolerance in mind. As suggested by Jon Sellors, UK head of communications for RSA, “it is essential that companies approach their insurance broker for risk management advice in order to best take advantage of this current growth”.

Just as the recession presented its own risks and opportunities, so too will the economic upturn; a set of risks very different from those we’ve become accustomed to over the past two years. Businesses that will fare best in the coming months and years will be those that make the most of new opportunities while keeping close in mind the risks that can threaten long term strategy and throw them off course.

Photo via user ZenTraveler at flickr Creative Commons

We’ve written on the benefits of risk management and on its application by brokers in blog entries like Using Risk Management to Win in the Mid-Market and An Ounce of Prevention: Does Risk Management Really Work? So expanding on that, today The ClearRisk Blog brings you some of the ways that risk management can increase brokerage revenue.

• Attract New Clients: Providing something of great worth doesn’t go unnoticed. Including risk management advice and support as a value-added service for clients can make a brokerage stand out in the eyes of a potential customer.
• Better Terms in the Insurance Market: In working with your clients to identify risks and to ensure they carry the right coverages, you help your clients to become ‘best-in-class risks’. Having clients who are informed and knowledgeable about the risks that face their operations will bring them better preparedness as well as access to better rates and terms in the market. Organizations that work towards risk improvement are perceived more favorably by insurers.
• A Better Book of Business: Clients who take an active role in managing their risks have better loss ratios over the long term. With better client loss ratios, brokerages can earn higher CPC.
• Stronger Relationships with Clients: Providing risk management guidance to clients not only provides value, but it gives you the opportunity to meet and work with clients on positive, relationship-building terms. Working with them to identify potential risk areas and gaps in their coverages helps you to be seen as a provider of solutions; someone who is looking out for their best interest and who shares the same goals. This can help take your interactions with your clients to a whole new level, where long term and beneficial partnerships are built, maintained and valued. Think about your longest and best relationships with clients. What if you could replicate that trust and loyalty in all of your client relationships?

These are just four of the many benefits that the provision of risk management services brings to brokerages and brokers. On Thursday, April 22nd, 2010 at 2:00pm EDT, I will be conducting a free webinar on the Top Ten Ways to Use Risk Management to Increase Brokerage Revenue.

UPDATE:  You can view a recording of the live webinar here:  Risk Management for Insurance Brokers

Most organizations look to financial risk transfer through insurance as their first response to managing risks. Out of all the risk management tools available, insurance can often be the most expensive option. There are a number of simple things that can be done to minimize your insurance-related costs and to get better terms in the insurance market through your broker.

First and foremost, budget for the market cycle. The insurance market is cyclical with wide swings between the peaks and valleys. Budget at the high end of the cycle and keep your budget consistent. When prices start easing, remember that an upswing is on the horizon.

Carry coverage appropriate to your needs. Your broker can help you make sure that you don’t over or under insure, that there are no gaps in coverage and no unnecessary coverages.

Ensure that your property values are accurate. Values for buildings, contents, equipment and inventory should be reviewed regularly so that you are adequately covered, but not too high or else you are paying too much.

Make sure your liability policy limits are reflective of your exposures. Strike a balance between anticipated maximum loss and cost of coverage. Liability limits are subjective, so the best limit is one that allows you to sleep at night!

Choose deductibles that will result in the optimal cost of risk. When you choose higher deductibles, you usually get lower premiums, so when shopping for insurance, get quotes for a few different deductible options. Many companies have deductibles way lower than any claim they would make. Ask yourself, “what is the smallest claim I would make to my insurer?”. If the answer is $10,000, then why is your deductible $1,000?

Sell your company to the insurance market. Insurance companies compare you with all the other companies in the same industry. Make sure that your insurer is aware of all the things you do that make you a better risk. The things you do in your organization to reduce down time, improve quality and to prevent losses make you a better risk than companies that don’t do these things. Insurance companies want to know that you care more about risk than they do. A great way to sell your company to the market is to structure, formalize, document and report your risk management efforts using ClearRisk Manager.

Finally, work with your broker more. Your broker will never know your company or your risk as well as you do. Spend time communicating your risk to them so that they can get you the best possible terms in the insurance market.

For information on registering for a free 30-day trial of ClearRisk Manager, click here.

Picture from Flickr Creative Commons via user clarinetgirl

Insurance brokers are thought of as trusted advisors. Being an important point of contact between businesses and the insurance industry, brokers look out for the best interest of their clients and are depended on to ensure that their client’s businesses are protected.

But what does it really mean to be a trusted advisor? This role, as suggested by Maister, Green and Galford in their book, The Trusted Advisor, is first about gaining the confidence of clients. For brokers, there’s no better way to do so than to provide something of value.

The mid-market has long been a coveted market for insurance brokers. Being a segment where substantial growth is possible, it’s worthwhile to understand how to develop meaningful, long term relationships with these clients.

So how can brokers provide value to mid-market companies? Well, value for them is the protection of assets in the pursuit of growth. It’s the optimization of uncertainty to maximize opportunity. It’s the anticipation of potentially negative events to protect future ability to operate and create shareholder value.

Sound familiar? It should! The value is risk management!

Simple enough, right? Well, not really. The complication is that the mid-market doesn’t really know that risk management will help them to improve their short term and long term business operations in such a beneficial way. Put on top of this the fact that risk management solutions built for the mid-market have been largely non-existent and that means brokers have quite a bit of work ahead of them to develop trusted relationships with these clients.

I recently asked three questions of the LinkedIn community that brought about some important insights:

1. Does the mid-market want/need risk management?

2. Should brokers be doing more risk management for clients?

3. Is insurance a commodity?

Summarizing the community’s responses, it was seen that the mid-market would employ risk management if they understood it better, if the return on investment was clearer, and if they could undertake risk management without interrupting the operations of their core business. Respondents showed interest in brokers offering more help to them so that SMBs can see the value of risk management and find solutions appropriately matched to their needs.

There is indeed an interest and a need that SMBs are willing to invest in under the right conditions.

How should the industry respond? First, insurers can provide risk management resources to brokers to support their work with mid-market insureds. Having the right materials to provide assistance to mid-market clients will mean being able to play an important role in their risk improvement. The offering of risk management services can help educate clients and add value to their relationship with their broker. For brokers, a focus on risk management means the broadening of their service offering, increased revenue potential and the ability to attract and retain clients.

I think a greater emphasis needs to be placed on innovation in finding and creating solutions made to fit the mid-market as opposed to trying to make the high end solutions fit. With the right solutions, insureds will see the direct cause and effect between good risk management and return on their risk management investment. Attraction and retention of clients for brokers, decreased costs and increased return for SMBs: risk management in the mid-market is a win-win situation.

A company’s reputation is its biggest asset! Successful companies have always guarded their reputations at all costs. Corporate communications have always been very structured and deliberate and the messaging meticulously controlled by dedicated professional spokespersons. That was before blogging, Twitter, Facebook and all the other new social media that gives all of your employees and customers a soapbox and a bullhorn with a global audience!

You’d be hard pressed to find someone these days who can argue against the impact that social media has had on the way that we conduct business. From customer support and advertising to internal controls and knowledge sharing, social media has changed the way we work and has changed the expectations of customers.

As we try to better understand how to use social media to our advantage, it’s important to consider managing the associated risks. We need to ensure that employees know the Dos and Don’ts and the potential impact on the company and them of going “off script”.

Employment services leader Manpower recently released a study showing that only 29-percent of organizations in the Americas had set policies and procedures governing their employees’ use of social media. It’s pretty safe to say that more than 29-percent of these companies are using social media in one way or another to add value to their operations.

A social media policy, much like many risk management policies, is a simple way to inform employees on what to do to act in the best interest of the company and its stakeholders. To help you create your own policy to make the most of social media, here are the key elements of the ClearRisk social media policy:

1. Purpose: What are the company’s social media objectives? Why is it important for the organization to manage its use of social media?
2. Respect: You should encourage your employees to always communicate on behalf of the organization in a way that is respectful and receptive to different viewpoints. This will help the company to be seen as approachable and open.
3. Know your Audience: Employees should be aware of the scope of social media. A statement online can have an immediate global impact. It is important to always know who you’re talking to and who many be listening.
4. Value: Just as your products and services need to provide value, so too does your involvement in social media. Employees should be encouraged to always remember to listen, be receptive, responsive, helpful, accessible and approachable.
5. Once it’s out, it’s out: Anything posted online is accessible by anyone with an internet browser. It’s important that employees know that they are to be responsible for what they post on the internet. Content requiring a non-disclosure agreement or considered to be company proprietary information should not be published online.
6. Honesty in Identity: Putting a face or name to an online identity can be extremely valuable in lending credibility to what you post online. Linking your name, organization, title and contact information to online communications can not only help people to feel a connection to what you have to say, but it will allow them to learn more about you and to have a way to connect with you.
7. Responding to Criticism: Gone are the days where companies can ignore the negative comments being made about them, their brand, or their products. And honestly, with such a wealth of feedback available to us on the internet, why would you want to ignore it? The benefits of being open to online criticism are twofold. Not only do you benefit from learning what others think about you, but it provides you with the opportunity to respond to the criticism and show a global audience that you are listening to what they have to say, that you’re receptive to their concerns, and that you care about what they think.
8. Attribution: It’s important to ensure that employees have the proper permissions to use any content created by someone other than themselves. Whether it’s research, media or simply an idea, employees should always make sure they have permission to use content and that the proper credit and attribution is given.
9. Business Outlook: There are all sorts of laws about what can and can’t be said about a company. Talking about revenue, future product ship dates, pricing decisions, roadmaps, unannounced financial results, share price or similar matters can get employees and/or the organization in a mess of legal trouble. Employees should be told to stay away from financial topics and predictions of future performance.
10. Company Time: Time spent managing online activities should never interfere with an employee’s contribution to the organization’s core competencies or with commitments to customers.

As with any risk management policies, it is important to review and update your social media policy regularly. Social media is evolving quickly. New ways of communicating, new social networks, and new trends in best practices are emerging every day. Just as they present new business opportunities, they also bring new risks. Keep your policy up to date and delegate someone within your organization as the contact to whom your employees can go with any social media-related questions and issues. The book Groundswell by Charlene Li and Josh Bernoff provides an in-depth look at this topic and gives excellent criteria for evaluating the pros and cons of any new types of social media. For a full sample social media policy, see the Company Guidelines on Online Public Discourse from the ClearRisk Manager Library.

photo via sxc.hu user svilen001

This week, ClearRisk presents a guest post by Thomas M. Bragg. Tom, who has specialized in business planning, strategy and business risk management for 20 years, writes a blog about practical risk management for small business.

More and more is being written about risk management for small and medium sized businesses (SMBs). In fact, if you do a little bit of research, you’ll probably find yourself soon overwhelmed with advice, methods, terminology and tools.

Getting started with any new process is tough. It’s hard to get out of the blocks. It’s scary. It seems overwhelming.

Don’t be overwhelmed. I’m here to tell you that establishing an effective risk management process for your business doesn’t have to be difficult.

Craig Rowe, CEO of ClearRisk recently wrote:

Risks faced by SMBs are manageable and the benefits are worthwhile. Even though traditional risk management may not suit the needs of SMBs, scaled solutions that can help SMBs identify, evaluate and manage their risks are available.

So what does a scaled risk management process look like for a small or medium sized business? How do we get out of the blocks? There are ten basic steps.

1. Establish management support and buy-in.

Before you can do anything, there has to be buy-in from the top. The company’s ownership and/or management have to be on board with creating the risk management process and providing resources necessary to execute that process. They will need to have a basic understanding of what risk management is, why it’s important and (especially!) why it’s in their best interest to implement a formalized risk management program. If top management doesn’t see the value in the exercise, stop here. Any work on additional steps will be a waste of time.

2. Learn about the process.

Now that you have the necessary sponsorship and resources, you need to do some research into the specifics. Although there are only three basic steps in risk management, there are many different techniques for accomplishing those steps. Investigate what methods are in use in your industry. Identify the best practices. Think about how your company’s specific culture will come into play for your process.

3. Identify helpful resources.

As you are doing the research in Step 2, start compiling a list of potential resources you can tap into. There are many websites and blogs that focus on risk management. You will also find professional advisors who can help you – consultants, bankers, investors, insurance brokers, directors, etc. This resource pool doesn’t necessarily need to be expensive. Many of the stakeholders in your business will be happy to help you if you ask.

4. Create a plan.

A plan will be critical to successful implementation. Plans provide a means for communication and accountability. They also help pull a team together if the plan is generated with input and agreement from the team members. Your plan should include details on schedule, budget, approach and resources to be used. The plan should also identify your company’s risk management ‘champion’. Don’t forget to include the steps Craig wrote about in his post here.

5. Identify your risks and opportunities.

It’s time to take the first step in the risk management process itself – identify your risks and opportunities. Don’t worry about creating an exhaustive list. It’s more important to just get started. Hold a brainstorming meeting or a series of meetings. It will be helpful to focus your brainstorming sessions on specific categories – e.g. risks/opportunities to facilities, risks/opportunities to revenue, risks/opportunities to expenses, etc. Remember that identification is an ongoing process.

6. Evaluate your risks.

Risk evaluation can get complex. Start simple. Estimate a probability of occurrence to each risk and opportunity using three levels – high probability, medium probability and low probability. Next, estimate a potential impat of each risk using three levels – high impact, medium impact and low impact. When you are done, sort the list so the ‘high probability/high impact’ items are at the top, followed by the ‘high probability/medium impact’ items and so on. You can always incorporate more complex risk evaluation techniques later.

7. Plan for your risks.

Now that you have a ranked list of risks and opportunities, start putting plans together for the heavy hitters – the high probability/high impact items. Don’t worry about any others at this point. Get your risk mitigation and opportunity exploitation plans created for the first group. A ‘rifle’ approach – focusing on a few key items – will be much more effective than a ‘shotgun’ approach. You can come back to the risks and opportunities farther down the list later.

8. Take action on your plans.

The hard part is done. You’ve got the plans. Now all you have to do is execute them. Go forth and have some fun!

9. Check your progress against your plan.

Don’t forget to monitor your progress against your original plan from step 4. Check on how you did against schedule and budget. Evaluate if your actions were effective. Communicate your progress throughout the company. Leverage your early successes to build support for your continuing effort.

10. Repeat steps 5 through 10.

Risk management is an ongoing process. Review your risks on a regular basis to account for new risks and opportunities, changes in probabilities or impacts and adjustments to mitigation plans. Remember to communicate, communicate, communicate.

That’s it. Ten simple steps. Not too bad, right? Take that first step. Once you are started you will feel the momentum build and the once overwhelming project won’t seem so bad after all. You can do it.

What do you see as the biggest obstacles facing you in implementing a risk management process at your business? Leave a comment and let’s talk about it.

For more from Tom, check out his blog; Thomas M. Bragg on Business Risk Management.

For helpful tools, visit  ClearRisk’s library of Risk Management Best Practices.

photo via Flickr Creative Commons from user robertdx

I am very pleased to announce the launch of the new ClearRisk.com! Over the past few months, our ClearRisk team has been working to create a website that is strong in design, content, usability and interactivity.

In creating the new site, our focus has been on :

• Improving navigation
• Providing new risk management resources
• Incorporating more accessible support and 24/7 chat
• Improving speed and usability for our online risk management solution ClearRisk Manager.

Now that it has been launched, we would really like to hear from you. Visit the sites, browse around and tell us what you think! All feedback is greatly appreciated so please help us make ClearRisk.com even better.