By Robert M. Dietzel, CIC, ARM, managing partner andco-founder, KMRD Partners Inc.

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The partners at the insured were exactly where they wanted tobe. Their firm sold best-in-class products at competitiveprices. Profit margins were sufficient. After years ofdiligent outreach and performance, the partners had earned thetrust of a dedicated client base. Suppliers were conscientious anddependable. Key employees had embraced the company mission. Everything seemed to be under control. What could possibly gowrong?

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Those of us who are committed to supporting organizational riskmanagement know fully and by example that not all risks are underthe insured’s immediate control.

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For any of these risks, the insured’s business plan will beviolently disrupted without the advice and solutions only aninsurance agent can provide. Everyone who worked so hard to helpwin the insured’s success could be placed at financial risk--fromsenior executives to line employees. Loyal suppliers,creditors and other valued stakeholders could also be placed atrisk.

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To understand the impact of supply chain disruptions in today’sconnected economy, we need only recognize the impact of theThailandfloods of 2011 or the Japan tsunami of 2011 on many U.S. manufacturingfacilities.

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Read related: "Modelingfor CBI Not Easy, but Possibly Within Reach."

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Underwriters and agents both recognize these and other risksthat are outside the insured’s immediate control. Because itis our everyday job to recognize and properly measure risk, itsimportance is easy for us to see. We are obligated asprofessional advisors to educate and persuade clients at risk oflosing all they have worked so hard to achieve from risks thatappear to be outside their immediate risk management programs—whatwe call “second-hand risks.”

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As weather-related events seem destined to dislocate supplychains and create havoc in the future, and as the disruptive actsof disaffected individuals are likely to continue, agents andunderwriters must effectively communicate the benefits of coveragefor contingent events--second-hand risk. As their riskmanagement and transference advisers, we owe it to them.

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Following are a few of these potential “second hand” risks—andwhat you as an agent can do to advise your clients.

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fire

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POTENTIAL RISK:. A fire races through acritical supplier’s plant, resulting in closure.

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WHAT AN AGENT CAN DO: By advising the insuredabout the importance of having multiple suppliers, the economicimpact following such an event will be blunted. It is not a matterof trust; it is a matter of risk. Having options can help take thescare out of unwelcome surprises.

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disaster

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POTENTIAL RISK:. A weather-related eventdeprives a supplier of crucial raw materials.

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WHAT AN AGENT CAN DO: Although weather isfamously unpredictable, it is reasonable to expect volatility atpredictable times of the year, such as wildfire or hurricaneseason. Advise the insured to increase inventory prior topotentially volatile seasons, and to source multiple supplierslocated in divergent weather theaters. You can also suggest thatthe insured to express his concerns to suppliers regardingpotential weather events, and request contingency plans. Simplemeasures can often prove to be the most effective path to soundrisk management.

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Read related: ‘Mind-Boggling’Business Interruption Losses Mount, Post-Sandy

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terrorism

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POTENTIAL RISK:. As evidenced at this year’sBoston Marathon, disaffected individuals bring all economicactivity to a standstill following a terrorist event.

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WHAT AN AGENT CAN DO: Because insurance agentsare trained risk managers, they can advise the insured regardingenlightened risk management. Is the client conducting contingencyexercises with staff on a periodic basis? What if the office mustremain closed for a number of days? Are business continuity anddisaster recovery plans on file? Are they accessible, and can theybe executed from a remote location?

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Read related: BostonTragedy Indicative of 'New Reality' of TerrorAttacks

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closed

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POTENTIAL RISK: A catastrophic event causes theinsured’s largest client to suspend or even cease operations.

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WHAT AN AGENT CAN DO: Increasingly,insurance agents must also act as business consultants to properlyserve their insureds. Although there is no insurance coverageagainst weighting a business too heavily towards one client, thisdoes represent a clear case of excessive business risk. Agents canseize this opportunity to position themselves as businessconsultants, and “teach” insureds to realize agents can provideadded value. Stronger, deeper, longer lasting client relationshipswill result when the agent acts as the insured’s advisor.

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