Have you “Unbundled” yet?
Have you “Unbundled” yet?
I recently came across a surprising statistic. Only 6% of senior executives believe they effectively manage their company’s risks, according to McKinsey. In today’s metrics-driven business climate, every part of an organization is becoming more data driven, efficient, and optimized. Yet risk management lags behind. Why?
Property risk provides insight into this disconnect. Company leaders should know exactly how prepared their facilities are for fires, windstorms, or earthquakes. They should have adequate data to keep business interruption to an absolute minimum when catastrophe strikes. They should know precisely how their risk profile has changed due to pandemic-related supply chain issues.
Yet many risk managers don’t know the answers to those questions. That’s partly due to a reliance on insurance as their primary hedge against property risks. Insurance is necessary and helpful but too many risk managers rely on insurance companies alone to carry out risk assessments of their facilities. It’s convenient because the assessments are bundled with insurance coverage, but it’s hardly the most strategic way to operate and doesn’t offer risk managers comprehensive data.
Unbundling risk assessments from insurance is a far better option. Partnering with independent engineers for risk assessments empowers business leaders to take a more active role in their risk management and insurance programs. Going unbundled means risk assessments are created together with the client and the client owns the data. It’s a strategic approach to tailor risk programs to a company’s unique risk tolerance, and business leaders are can fine tune their risk profiles as they see fit. It also helps them control retained losses and keep risk engineering costs in check.
Unbundling can also save money, which is crucial in a disciplined insurance market with premiums climbing. At TÜV SÜD America, our larger clients are seeing 35% higher insurance prices on average, while smaller clients report increases of around 20%. The stakes are high, and successfully negotiating with insurance companies gives insureds a better chance of getting more favorable premiums, terms, and conditions. That starts with good storytelling. Underwriters are looking for insureds who take real steps to improve risks and better understand critical exposures.
For example, if an assessment discovers that high winds could detach a facility’s wall cladding or turn rooftop equipment into dangerous projectiles, they can fix those issues before marketing the business to insurers. If a business is building a new manufacturing facility, risk engineers can examine the plans and make recommendations for optimal fire safety equipment, emergency communication systems, or handling of hazardous chemicals.
Unbundled risk assessments help companies grade their risks, benchmark with other locations, communicate property risk program objectives, and implement better decision making. Taking those steps helps prioritize finite capital spend for risk improvement based on what makes sense for the company, not the carrier.
Underwriters will err on the side of caution and insure clients to the highest degree possible. But if company leaders are confident enough to take on some risk themselves, insurance will attach at a higher level and they will more strategically manage their risk portfolios and save money in the long run, especially if they introduce a captive – a wholly-owned subsidiary insurer that provides risk-mitigation services for its parent company.
Independent risk assessments are even more critical considering today’s supply chain issues. COVID-19 led to factory closures, supply shortages, and work stoppages. As a result, everything from electronics to automobiles to furniture has been delayed. An unbundled, independent assessment can help determine the likelihood of business interruption and major supply chain breakdown – and keep organizations prepared for an uncertain future.
Independent assessments also help with pivots and strategy. Let’s say a business considered changing from a warehouse to manufacturing plant. An insurance company may investigate whether they would even insure that new risk, while an independent engineer would examine ways to do it safely and offer guidance on best practices. That consultative approach sets unbundled risk assessments apart.
If you are unsure if unbundling is right for your business, ask yourself: are you ready to take control of your risk profile? If yes, are you armed with adequate data about your property risks? Do you know if windstorms, earthquakes, or other perils would cause business interruptions – and for how long? A strategic loss control partner can support you in this decision-making process and help you transition to a more modern, sophisticated approach to risk management.
In a metrics-driven business landscape, it’s no longer acceptable for risk management to fall behind the data curve. Unbundling your property loss control is the strategic, data-driven step a business needs to modernize operations and save money.
TÜV SÜD Global Risk Consultants (GRC) provides unbundled property risk management programs as an alternative to traditional options that depend on insurance companies and underwriters to evaluate risk and provide loss controls.