Many of you have heard or read about Agency Risk Management and the important role it plays in taking proactive steps to protect your agency, customers and employees. And while several agencies have taken the first step in understanding the exposures facing their business, others are still unsure of exactly what Agency Risk Management is and why it’s so important.
What is risk management? ISO 31000 defines risk as “the effects of uncertainty on objectives”. In business, risk management is the process of analyzing goals and identifying and responding to the inherent uncertainties of the operation. Agency Risk Management is looking at the specific uncertainties for the agency that would have consequences in terms of economic performance and professional reputation and determining methods of managing those risks in a deliberate and effective manner.
So, we’re talking about E&O risk, right? Yes, but that’s not all! While we have traditionally focused on E&O risk for independent agencies, there is a larger picture to look at. Think about the way you look at customer exposures. The Big “I” Agency Risk Management program does the same for your agency. We look at agency risk within four categories: operational, strategic, financial and physical hazards.
Operational Risk: Within an agency of any size, operational risks exist due to procedures and systems that are in place within the agency. Operational risks are the primary culprit for E&O claims, so we spend a great deal of time focusing on the invariable practices that are outlined in an agency procedure manual as well as how well agency employees document contacts with customers, carriers and third parties. An agency Operational Improvement Review or an Operational Assessment will take a unique look at the operational risks for your agency.
Strategic Risk: Many agencies do not take the time to create a strategic business plan or fail to make necessary updates to the plan they have. These behaviors increase the strategic risk of the agency. It is important to create a business plan and have regular reviews of the plan. If the business fails to deliver on their plan, fails to allocate the adequate resources or fails to respond to changes in the industry, they could quickly find themselves struggling to keep their doors open.
Financial Risk: Understanding the financial risk of the agency requires a firm understanding of the agency’s financial health. An agency owner should have a clear understanding of the customer segmentation as well as the agency’s pro forma operating profit. Mitigating financial risk means making sound investment decisions and turning financial risk into financial opportunity.
Physical Hazards: Physical hazards can be easier to visually see but are often ignored and take a backseat to running everyday operations. Perhaps the agency building needs repair or working conditions are hazardous for employees. It is always important to recognize these hazards (especially as a business owner in the insurance industry!) and make sure that employees see an agency owner’s commitment to their well-being.
At Virtual Agency Solutions, we continue to look for additional resources to offer and we encourage everyone to be proactive about agency risk identification and mitigation. There are simple steps to protect the agency from a potential loss or reputational damage. In an industry constantly experiencing change and opportunity, the only way to be successful and stay relevant is to work together to mitigate risk and capitalize on opportunities in a calculated manner.