Fighting Fire With Fire

On the other hand, if buyers or risk managers "aren't doing a good job, and people think they can't find somebody to do what they need them to do, then risk management service being provided by brokers or other outsiders would naturally emerge as a competitive service that someone would choose over a full-time dedicated person," he said.

Giving an agents perspective, David Hargreaves, vice president of Argus Insurance Inc. in Yakima, Wash, said: I think to a degree there is, or should have been, risk management integrated into [the brokering] process. Just going out and selling insurance is rather passe.

I think that part and parcel of somebody wanting you as their agent or broker is what you bring to the table in terms of their entire cost of risk, which includes management of their losses and claimsavoidance, he continued.

Mr. Hargreaves explained that many organizations don't have a risk manager on site and don't want to pay for a full- time risk manager. The result, he said, is that many clients expect [risk management] from their broker. The bar is being raised and justifiably so."

Risk management, he said, is becoming "more and more important. Suddenly, in this market, risk management becomes more in focus because it's not just about cheap premiums, which can be a substitute for loss control."

His agency is offering risk management more as a value-added service to clients rather than on a fee basis, he said, noting that his firms clients include distributors, medical clinics and hospitals. "Whenever you get into the medical environment, risk management is a given."

Mr. Hargreaves said he doesn't leave good risk management to chance and is currently taking Certified Risk Management courses offered by Austin, Texas-based National Alliance for Insurance Education and Research.

I think the majority of people taking that curriculum are agents," said Mr. Mandel, also referring to the National Alliances Certified Risk Managers curriculum. "I would definitely agree that there are a lot of agents out there trying to get this knowledge, said Mr. Mandel, who distinguished agents from brokers, suggesting that brokers typically serve larger clients than agents.

Agents have gotten the message that small business is reading everyday– about the implications of bad, or no risk management–and realize they need to do something about it," he said.

This solution for small businesses, he noted, is "probably a good solution as long as [the agent] gets educated properly."

On the broker side, several large brokers have emphasized outsourcing risk management "and trying to do most, if not all, of what risk managers do for companies," he said, going on to note his discomfort with that.

Many organizations are trying to get things done without adding new staff, he said. One thing some businesses miss, however, is that "if you really have a job for a full-time risk manager, or even a staff or department, there's no way you're going to get it done any cheaper by outsourcing itnot true risk management."

A benefit of outsourcing, he added, is flexibility, "meaning if you only need 5,000 hours in one year and 2,000 hours in the following year, then you have the ability to buy what you need."

James R. Mahurin, faculty member for the Independent Insurance Agents & Brokers of America's Virtual University, cautioned that agents and brokers dabbling in risk management may not be doing any favors for their clientseither large or small businesses.

Mr. Mahurin, who is also an independent risk management and insurance consultant operating out of Franklin, Tenn., cited IIABA study materials for business interruption seminars, which indicated that "following a catastrophic loss, 40-43 percent of firms do not reopen because their insurance was deficient."

Disaster recovery is "a big deal and requires a lot of planning," he said. "Part of that planning is maintaining market share while your facilities are closed."

Though keeping a business open requires that an organization "spend a lot of money immediately" after a catastrophe, "the bank takes all the insurance money," leaving the owner to renegotiate loans.

"If there is any debt, the bank takes their part of that," he explained. "The insured is left with the residual."

On the risk management side, he said, businesses have to think about several questions: "Do you have a disaster plan? Have you costed that plan? And have you given the cost estimates to the insurance company so it will release the money in 24 or 48 hours instead of two months?"

John R. Costello, partner of Costello, Dreher, Kaiser Insurance, an agency in Rochester, N.Y., said the risk management services he offers on a consulting basis have helped clients.

"Risk management is a natural extension for consultative sales for clients not large enough to have a dedicated risk manager," he said.

Mr. Costello works with clients to identify property risks needing coverage, human resources issues, and in the area of loss prevention. He also has helped clients develop flow charts of business processes.

"Nobody wins when the client is unhappyif they feel they weren't properly covered," he said. "It's not good to find out options afterwards."

To better prepare himself, he said he is working toward a Certified Risk Management designation.

John Finnegan, president of Macomber, Farr and Whitten Agency in Augusta, Maine, said offering risk management service has been invaluable to his agency and personally rewarding.

"It goes over and above the traditional insurance lines and creates a bond with the client that is impenetrable," he said. The client stays with you and the retention is incredible once youve established that higher threshold of service.

Because of the advent of automation and computers, the role of agents "has been redefined," he said. "It all speaks to the value-added necessity of providing more than the competition."

Since his agency is located in the state capital, he said he has access to the Department of Labor and the Department of Environmental Protection at the state level and can advise his accounts in areas related to insurance.

One example, he cited, is a senior citizen housing project rehabilitating a historic building that happened to be in a flood zone. In order to get funding, he said, a flood and evacuation plan was required.

I have some sensitivity to that because our agency burned up once, he said. The agency developed a 37-page plan that was instrumental in helping the client get its funding.

This was several years ago, he said. And they quite nicely have kept their account with us.

He said he also helps clients appeal workers comp claims. "We dont act as attorneys," he said, "but we make sure their interests are secured as an employer and that they get the same rights afforded to them as the employee gets.

Mr. Finnegan, who teaches insurance courses at the University of Maine, said he is a strong believer in the Associate in Risk Management designation offered by the American Institute for Chartered Property Casualty Underwriters, and is contemplating taking the program. He added that he is planning to get a masters degree in insurance through Boston University.

Mr. Hargreaves' advice to agents and brokers is to "learn all you can." He noted that the current market is "indicative of a normal market.

I think what we've lived through in the last soft market was abnormal, he said. I don't think the underwriting disciplineis going to go away."

He added that expectations for risk management services from clients, as well as carriers, will become greater. "They want to know that you can do a risk analysis and that you know what exposures exist," he said.

Reproduced from National Underwriter Edition, July 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.