Commercial Risk Management: Managing Risk & Cost in Times of UncertaintyPay Attention or Pay Big
Understanding the Issue – Tips for Maintaining Resiliency in this Economic Downturn
Inflation, supply chain disruptions, rising interest rates—oh my! The economy is going through a lot right now. In these uncertain times, businesses can work to overcome economic volatility with confidence by staying proactive with these tips to bolster your business’ resiliency:
Focus on core assets.
Protect the areas of your business that produce the most revenue. Customer retention is crucial, especially in this economic downturn. Ensure that your organization is delivering on your customers’ expectations. Employees are your greatest asset—remind them as such and keep the lines of communication flowing.
Zero in on your cash flow strategy.
Think of your business’ cash flow as a bucket of income and leakage. Leakage refers to your excess expenditure that is draining your bucket of income. Now is the time for businesses to reduce leakage by plugging holes in the cash flow bucket.
Renegotiate with suppliers, if possible.
Keep an eye on price increases and don’t be afraid to ask for a payment plan or financing for more expensive items, but look closely at the terms. Diversifying your vendor pool can decrease your overall risk while increasing your negotiating power.
Optimize your insurance portfolio.
As your business changes and evolves, so will your insurance portfolio. Ensure that your insurance policies align with your organization’s operations. Combat the tide of rising premiums by optimizing your coverage.
Invest in loss control strategies.
Prevention is always less expensive than damage control. Stay proactive in your business’ loss control by investing in employee safety training, continuing education, and the use of telematics to halt issues before they arise.
Understand the high interest environment.
Interest rates will likely continue to climb until inflation is under control, presenting a myriad of challenges for businesses. Always consult with your financial leaders, insurance advisors, and attorneys before agreeing to take on new debt.
Partner with the right broker.
The right broker can help protect organizations from the increased risks that come with an unstable economy. Aligning your business goals with a partner who creates insurance solutions tailored to your needs is a vital reinforcement in any economic climate.
Choose an area to implement change.
Compartmentalize your risk management strategy into three areas: how the market views your business, what losses you experience, and who you choose to walk you through this marketplace. Evaluate each area to identify which needs the most immediate improvement.
Though unexpected situations seem to loom around every corner, there are steps to proactively position your organization for success in the eye of the storm. Partnering with a team of advisors experienced in navigating all market states provides you with the comfort and support needed to fortify your business for whatever comes next.
Strategies to Manage the Issue – Managing Risk & Costs During an Uncertain Economy
Owning and operating a fleet is expensive. Fuel and maintenance costs keep rising, not to mention the continual expenses of licensing and labor. Commercial auto rates are rising because of inflation, risky driving, fatalities, and nuclear verdicts awarded by judges and juries. Due to these factors, commercial auto rates increased seven percent in Q4 2022. Now more than ever, it is crucial for business owners who have commercial fleets to be proactive in navigating rate pressures. Harnessing the power of telematics is one of the best strategies businesses can use to control the risks and costs of owning and operating a commercial fleet.
7% IN Q4 2022
Help reduce fleet costs with telematics:
Telematic solutions are GPS and cameras that allow you to identify where a vehicle is and has been, what it is and has been doing, as well as the happenings around the vehicle. These programs can help reduce fleet costs in a variety of ways, including:
Identify Risky Behaviors
Risky driving increases the likelihood of preventable accidents. Telematics monitors actions, such as rapid acceleration, harsh braking, and frequent lane changes. This information allows you to take corrective action with your employees. Not only does this mitigate potential collisions, but it also boosts productivity, improves safety, and decreases wear and tear of vehicles, leading to potential savings. Don’t just correct risky behavior—prioritize rewarding your responsible drivers. The benefit is the ability to identify the behavior before the crash happens.
Keep on Top of Maintenance
Certain telematics programs keep track of necessary vehicle maintenance so you can be proactive in your servicing before issues arise. Utilizing a system that monitors check engine lights, tire pressure, and other service alerts keeps you consistent with maintenance before issues become more severe and thus costlier to fix.
Manage Business Expenses
The use of telematics data can help you identify areas to cut costs and outlier expenses. One of the biggest money pits in owning a fleet is the unnecessary idling of engines. Idle engines burn through gas and contribute to more significant wear and tear over time. Tracking fuel efficiency through telematics can identify instances of engine idling, as well as ensure drivers take the best available route to optimize fuel usage.
Claims management and Mitigation
Telematics can provide valuable data that proves innocence from a liability standpoint and even highlight instances of fraud. For example, if someone cuts in front of your driver and slams on their brakes, telematics will show that your driver was not at fault or indicate the other driver’s actions were unsafe or even purposefully negligent.
Underwriters like to see robust information, and telematics does a great job of providing exactly that. Taking a proactive approach to risk mitigation makes you more appealing as an insured. Proving that your business is using telematics as a coaching tool to correct risky driving behavior shows your commitment to road safety and can help lower your rates. In addition, the more data carriers have about your operation, the more accurate the pricing.
Making the most of telematics—things to consider:
Deliberate Data Use
Business owners and fleet managers need a plan for desired data points to use, how to collect them, and goals to achieve. Failure to act on data insights may seem negligent in the eyes of your carrier.
Communicate with Employees
Make sure employees understand how and why you are implementing this technology. Focus on its benefits to driver safety and overall cost reduction to ensure employees view this as a positive addition to the workplace.
Telematics technology does cost money to install, maintain, and repair. Although telematics may be a money-saving solution for your business in the long run, ensure that there is room in your budget for initial and continual costs.
Privacy and Cybersecurity Concerns
Like anything that connects to the internet, telematics systems are susceptible to hacking. Vehicle functions can potentially be overtaken by a hacker, as well as render private data vulnerable to a breach.
The rapid evolution of technology expands new opportunities for the future of your business. Incorporating telematics into your commercial fleet is an avenue worth exploring with your qualified broker partner to evaluate how you can improve safety, extend vehicle longevity, reduce extraneous costs, and demonstrate your commitment to risk management to underwriters.
10 Tips to Optimize Your Supply Chain Management & Proactively Manage Associated Risks
As a consequence of the COVID-19 pandemic, 2021 brought unprecedented global supply chain issues that affected businesses across practically all industries. Unfortunately, the supply chain crisis, and the associated risks that came with it, continues to persist well into 2023. Businesses should be proactive in managing these risks by optimizing their supply chain management.
10 key areas to consider if you’re thinking about supply chain process optimization:
Assess current practices – Take stock of your current approach. Analyze the different areas of your supply chain, such as sourcing, transportations, and warehousing. Identify areas for improvement AND areas that may pose existing or new risks.
Zero in on planning – There are many methods and digital tools you can use to create accurate forecasts so that you have a picture of what to expect and can pivot as needed for unexpected delays and order cancellations.
Use technology to your advantage – Using technology solutions in supply chain management can provide visibility into inefficiencies and supplier risk so that you’re able to remediate issues in a timely manner.
Leverage data analytics – Data driven insights around loss control and risk allow you to take an informed approach about how to contain expenses and reduce the likelihood of losses. The most effective supply chain management strategies take the guesswork out of procurement and vendor management by extracting actionable insights from data with the help of digital tools.
Assess your supply chain risk – Regularly assessing your supply chain risk allows you to fix issues before you experience bottlenecks that negatively impact your bottom line. You’ll want to take a deep dive into your insurance to ensure that it can provide the financial relief your company needs should you experience supply chain issues. Consider looking into business interruption coverage and supply chain disruption insurance.
Reduce expenses – Review processes, as well as variable and fixed costs, and identify unnecessary expenses that can be cut. When looking at suppliers, assess the total cost of ownership for their goods and services, including warehousing and transportation.
Renegotiate with suppliers – To ensure that you’re getting the best rates possible, don’t be afraid to renegotiate. Cutting down on costs by renegotiating with suppliers can help you improve your profit margins.
Vet the cyber security posture of supply chain partners – Globally, supply chains are under immense and unprecedented amounts of pressure from many different directions, which is why they are a prime target for cyberattacks. Consider adding cyber security requirements to your contracts with suppliers and talk with your broker to ensure you’ve got the proper cyber insurance in place.
Communicate with suppliers – Identify key suppliers and understand their ability to meet supply requirements. Communicate with suppliers to gain visibility into their inventory, production, and purchase fulfillment status. In the event of shortages, it’s important to know how they’ll prioritize you in the context of their full customer list.
Identify alternate supply sources – Gain as much visibility as possible into tier two suppliers in case key suppliers can’t meet your demands. It’s critical to be able to activate tertiary supplier relationships in times of crisis.
In the face of so much uncertainty, it’s important to connect with your broker partner to evaluate how you can build a resilient supply chain strategy and purchase insurance policies that help safeguard your company from crisis.
It’s Not You – it’s the Economy: Renegotiating with Suppliers
Prices keep rising, but that does not mean you have to surrender to cost increases from your suppliers. Significant business risks, supply chain disruptions, and inflation are forcing companies to reevaluate their supplier relationships. We’ve all heard about how supply chain issues have impacted businesses’ ability to offer goods and services, but when you add inflation to the equation, this can further exacerbate supply chain risk.
In these uncertain times, regain control of your organization’s future by implementing strategies to manage supplier costs, negotiate with suppliers to get the best terms possible, and manage the added risks that come with an uncertain economy. Some good practices include:
Diversify suppliers. Depending on your type of business, keeping your suppliers domestic is a solid strategy for reducing shipping delays and mitigating the possibility of materials getting held up in customs during transit. If your business requires items that are only offered from international suppliers, underwriters may be more likely to write favorable terms if they see that you diversify your distributors. This shows that even if a shipment is delayed from one supplier, you still have other materials coming from additional suppliers, reducing the likelihood of a complete supply chain disruption.
Review contractual obligations. When negotiating terms with suppliers, align your legal team and your insurance broker to help identify areas of contractual risk as they relate to the supply chain so that you can find ways to minimize it. For example, a cost escalation clause may help protect against inflation risks.
CYBER SIDE NOTE: Globally, supply chains are under immense and unprecedented amounts of pressure from many different directions, which is why they are a prime target for cyberattacks. Organizations should vet the cybersecurity posture of their supply chain partners and consider adding cyber security requirements to your contracts.
Purchase a supply bond. Supply bonds guarantee the terms of a purchase agreement. Purchasing a supply bond is most beneficial when your business has a very large project or one that is under a strict schedule. For example, if you’re building a hospital and you require lab equipment to be at the facility by a certain date, a supply bond ensures that the supplier will produce and deliver the equipment by the date agreed upon in the contract.
Communicate. Communication is key to a quality buyer/seller relationship. Frequently checking in with your supplier about delays or evolving needs makes it easier for both parties to adjust terms or strategies. Keep comprehensive records of your supplier communications that document actual costs and note any time delays.
Negotiate better terms. In this tumultuous economy, everyone wants to make sure they get paid. Suppliers may often be willing to provide discounts if you pay the full amount upfront or early. Monthly payments or financing means additional paperwork and transactions to keep track of for the buyer and the seller, so complete and early payment can be a win/win for both parties.
By remaining strategic in your supplier relations and in regular communication with your insurance broker partner, you can help keep your organization’s performance on track even if inflation isn’t a problem that’s going to be resolved any time soon. Partnering with a team experienced in distribution and supply chain risk can help you mitigate losses and reduce your total cost of risk.
Determining a Path Forward – A Health Check Up… for Your Insurance Program? Yes.
Whether you’re thinking about starting a new business or have had one for many years, always remember that none are exempt from risk. Just as you schedule annual checkups with your doctor, dentist, and optometrist to make sure that you’re in good health, you need to take a similar approach to your business risk and the insurance you purchase to protect it. As your business changes, the risks it faces change. And as these exposures evolve, so do your insurance coverage needs. This means regularly reviewing all your insurance policies to ensure that you aren’t over or underinsured.
Preparing for your policy review to make the process as effective as possible:
- Gather copies of all insurance policies and communications from the last year
- Obtain financial data and information, including a balance sheet and a profit and loss statements
- Get loss runs from carriers
- Determine which stakeholders you need to involve (HR, legal, IT, compliance, etc.)
When conducting an insurance health check-up, consider the following:
Changes that impact your coverage
Once you’ve gathered all your materials and communicated with relevant stakeholders, it’s time to identify the changes your business has undergone within the last year so you and your broker can discuss what adjustments need to be made to your coverage. Your broker needs the time to discuss potential changes with underwriters, adhere to their guidelines, and paint a narrative of your risk profile that underwriters will understand. Keep the following questions in mind:
- What types of insurance policies do you need?
- Which insurance is legally required for you to have?
- Are there risks specific to your industry?
- How do you determine the right premium limits and deductibles?
- When was the last time you assessed the coverage you have?
- Which factors impact your insurance cost?
Addressing operational exposures
- Changes to ownership/business structure
- Changes to goods and services provided
- Expanding or scaling down operations across state lines, or globally
- Entering new contracts
- Changes in number of employees
- Advertising practices (as they pertain to liability)
- Updates to your IT infrastructure
- Information regarding capital investments
- Supply chain data
- Documentation of operating procedures
Determining property exposures
- Property values, their locations, and the revenue generated from them
- Increasing or reducing inventory
- Investments in equipment or infrastructure
- Acquiring or getting rid of assets (property, equipment, etc.)
- Expanding or scaling down commercial auto fleet
Changes to business income
- Gross revenues
- Payroll information and changes to payroll levels
Loss controls and claim history
- Documentation of safety measures
- Documentation of employee training
- Loss records and situations that could give rise to a claim
- If you’ve experienced losses, corrective measures you’ve implemented
Communicate about any other significant changes to your business practices.
So, how often should you revisit insurance?
Regularly reviewing your coverage helps ensure that you’re getting the greatest value from it. We recommend reviewing your coverage at least once a year with your broker. This is typically to prepare for your renewal. Outside of your renewal, any time your business experiences any of the changes outlined above is when you should conduct a review of your policies, limits, and deductibles.
Align yourself with the right partner
Don’t wait until your policies are due for renewal – try to be as proactive as possible when it comes to managing your commercial insurance portfolio. Determining whether or not you have the right insurance for your business can be difficult and time consuming without the support and guidance of someone experienced in navigating the intricacies of insurance as they relate to your unique business operations. Though reviewing your insurance can be time consuming, an experienced broker can help you choose the right coverage so that you’re not left to guess if you’re purchasing the right policies, or that you don’t end up in a situation where you thought a claim would be covered only to find out it wasn’t.
Partnering with a team of advisors experienced in navigating all market states provides you with the comfort and support needed to fortify your business for whatever comes next.
This material has been prepared for informational purposes only. BRP Group, Inc. and its affiliates, do not provide tax, legal or accounting advice. Please consult with your own tax, legal or accounting professionals before engaging in any transaction.