By Robert M. Dietzel, CIC, ARM, managing partner and co-founder, KMRD Partners Inc.
The partners at the insured were exactly where they wanted to be. Their firm sold best-in-class products at competitive prices. Profit margins were sufficient. After years of diligent outreach and performance, the partners had earned the trust of a dedicated client base. Suppliers were conscientious and dependable. Key employees had embraced the company mission. Everything seemed to be under control. What could possibly go wrong?
Those of us who are committed to supporting organizational risk management know fully and by example that not all risks are under the insured’s immediate control.
For any of these risks, the insured’s business plan will be violently disrupted without the advice and solutions only an insurance agent can provide. Everyone who worked so hard to help win the insured’s success could be placed at financial risk--from senior executives to line employees. Loyal suppliers, creditors and other valued stakeholders could also be placed at risk.
To understand the impact of supply chain disruptions in today’s connected economy, we need only recognize the impact of the Thailand floods of 2011 or the Japan tsunami of 2011 on many U.S. manufacturing facilities.
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Underwriters and agents both recognize these and other risks that are outside the insured’s immediate control. Because it is our everyday job to recognize and properly measure risk, its importance is easy for us to see. We are obligated as professional advisors to educate and persuade clients at risk of losing all they have worked so hard to achieve from risks that appear to be outside their immediate risk management programs—what we call “second-hand risks.”
As weather-related events seem destined to dislocate supply chains and create havoc in the future, and as the disruptive acts of disaffected individuals are likely to continue, agents and underwriters must effectively communicate the benefits of coverage for contingent events--second-hand risk. As their risk management and transference advisers, we owe it to them.
Following are a few of these potential “second hand” risks—and what you as an agent can do to advise your clients.
POTENTIAL RISK:. A fire races through a critical supplier’s plant, resulting in closure.
WHAT AN AGENT CAN DO: By advising the insured about the importance of having multiple suppliers, the economic impact following such an event will be blunted. It is not a matter of trust; it is a matter of risk. Having options can help take the scare out of unwelcome surprises.
POTENTIAL RISK:. A weather-related event deprives a supplier of crucial raw materials.
WHAT AN AGENT CAN DO: Although weather is famously unpredictable, it is reasonable to expect volatility at predictable times of the year, such as wildfire or hurricane season. Advise the insured to increase inventory prior to potentially volatile seasons, and to source multiple suppliers located in divergent weather theaters. You can also suggest that the insured to express his concerns to suppliers regarding potential weather events, and request contingency plans. Simple measures can often prove to be the most effective path to sound risk management.
POTENTIAL RISK:. As evidenced at this year’s Boston Marathon, disaffected individuals bring all economic activity to a standstill following a terrorist event.
WHAT AN AGENT CAN DO: Because insurance agents are trained risk managers, they can advise the insured regarding enlightened risk management. Is the client conducting contingency exercises with staff on a periodic basis? What if the office must remain closed for a number of days? Are business continuity and disaster recovery plans on file? Are they accessible, and can they be executed from a remote location?
POTENTIAL RISK: A catastrophic event causes the insured’s largest client to suspend or even cease operations.
WHAT AN AGENT CAN DO: Increasingly, insurance agents must also act as business consultants to properly serve their insureds. Although there is no insurance coverage against weighting a business too heavily towards one client, this does represent a clear case of excessive business risk. Agents can seize this opportunity to position themselves as business consultants, and “teach” insureds to realize agents can provide added value. Stronger, deeper, longer lasting client relationships will result when the agent acts as the insured’s advisor.
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