Risk Management

Risk management involves identifying threats to business and creating ways to reduce their impact. The goal of risk management is to use knowledge about potential losses and risks to avoid, reduce or transfer the risk before unexpected events occur. Risk exposure varies widely from industry to industry and even from business to business within the same industry.

Unexpected losses can derail even established, well-run businesses. When used in combination, risk management and insurance provide business owners with a powerful underpinning of security.

Adopting good risk management techniques will have the added benefit of improving your company’s operations. It can also distinguish you from your competitors. Nothing is more appealing to prospective clients than a firm that is quality-driven.


The insurance industry has developed a simple six-step process to manage business risk:

  • Identify risks – Closely examine your operations to determine where and how losses might occur
  • Evaluate loss potential – Determine the likely frequency and impact of losses
  • Define risk control techniques – Decide what loss control measures might be put in place to avoid, transfer and reduce impact. Is your insurance coverage adequate?
  • Implement risk control techniques – Put your controls in place
  • Monitor results – Develop management systems and standards that define safe operations for your firm
  • Evaluate results and adjust when necessary

Insurance policies are not on anyone’s top 10 list of reading material. Most people only read their policy after a loss. Unfortunately, they sometimes find inaccuracies or exclusions that adversely affect the outcome of their claim.

Reading policies ahead of time helps avoid this unpleasant surprise. The insurance policy is divided into 6 main sections. Knowing these sections and what they contain will help you quickly move through your coverage contract.

  • Declarations – Includes who is insured, the specific properties and risks insured, limits of coverage, effective dates of coverage, all forms and endorsements, insurer name
  • Insuring agreement – Describes the unexpected events that are covered under your policy
  • Exclusions – Identifies those events that are not covered
  • conditions – Specifies what you must do to meet your obligations as insured under the policy. This includes reporting claims promptly.
  • Definitions – Defines any word in the policy in bold print. This helps you better understand your policy and determine the extent of your coverage.
  • Endorsements – Identifies changes you make such as adding an auto or building location.

The primary risk areas that are insurable are:

  • Loss of property you own
  • Loss of income resulting from damage to your property
  • Liability from causing damage to property you do not own
  • Liability from causing bodily injury to others
  • Liability from causing financial loss to others
  • Employee dishonesty and crime
  • Loss of key people

Your first line of defense is a solid insurance policy with appropriate coverage, which will both pay a claim and defend you against any liability exposures.

Liability exposures have many sources. The vast majority deal with bodily injury or property damage that may be caused by your company operations or the products you produce or sell.

You also want to protect your own property, including buildings, contents, inventory and mobile equipment. Other special forms of property include money, property of others, electronic data processing equipment, data and employee property, such as tools. Most property exposures can be covered by insurance.

Automobiles are one of the largest liability exposures you face. This includes your employees driving their vehicles on company business and the use of rental cars. Here are a few risk management techniques that should help you reduce exposure:

  • Check employee driver records. If you put an unsafe driver behind the wheel and they cause an accident, your liability exposure can be dramatic.
  • Make sure your fleet is safe to operate and well maintained. Develop a regular maintenance schedule and keep records.
  • Make sure you have the right insurance. Auto liability covers bodily injury and property damage to others. Auto physical damage covers damage to your vehicles. Uninsured motorist protects you if hit by a motorist with no insurance coverage.
  • Anyone who uses their own vehicle on your business should provide you evidence that their personal autos are covered. If they use their vehicle primarily for business, they should be rated as business vehicles. Your policy should be endorsed to cover “non-owned and hired autos” to provide you protection in the event you are named in a suit involving their auto use.
  • If you have coverage for “non-owned and hired autos” and “hired auto physical damage,” you don’t need to buy additional rental car insurance.

Workers compensation covers medical expenses, retraining and loss of wages due to a work-related accident. Each state has its own workers compensation laws and systems. In Washington state, the state acts as the sole insurer for workers comp.

You can take the following steps to lower your premium:

  • Different work categories have different rates. Make sure your workers are classified properly.
  • Make sure your company’s claims history is accurate and up to date. If you have claims that still show as open but are actually closed, this can affect your rate.
  • If you are a mid to large-sized employer, consider the merits of a retro plan program that ties your experience even more closely to your own company claims.
  • If you are a very large employer (at least 250 workers), consider establishing a self-insured program that takes you out of the state system.

Business owners often opt-out of workers comp to save money. This may not be a wise move, because owners have more exposure than they may realize. Plus, workers comp coverage can act as a foundation for health and disability benefits that are otherwise very expensive.

Washington workers compensation excludes important marine exposures, including working on a ship, acting as a crew member or even working in some dockside situations. If your company is exposed to any of these situations you should consider additional marine policies.

You should also make sure that your independent contracts truly fit that classification. If it is determined that your independent contractor is actually an employee, you are subject to workers comp premiums, claims and potential penalties.

With our ever expanding global economy, more and more companies have international exposures. This can be as simple as importing and exporting, or as complex as offshore manufacturing or establishing offices in foreign countries. Not all exposures in the international arena are covered by insurance. This is a key area where risk management and insurance should be used together.

Here are a few areas unique to doing business internationally:

  • Importing and exporting transit insurance – Having your own cargo insurance will ensure you are covered if your goods are damaged in transit.
  • Getting paid – The Import Export Bank and private insurance companies have credit insurance policies available.
  • Foreign liability and property coverage – If you operate abroad or have foreign locations, you need specific international coverage.
  • Intellectual property exposure – If you are having a product manufactured abroad or are sharing valuable intellectual property, make sure you have international patent and copyright protection in force.
  • Foreign workers compensation – If you employ foreign workers or have your employees working abroad, consider this important coverage, which puts you in compliance with local laws.
  • Kidnap ransom extortion – In Mexico, there are 100 kidnappings a day, often to extort money from businesses. Coverage providers usually include services of a crisis management team, often located within the country where the kidnapping takes place.

Online Resources

Disaster Planning and Recovery
Information Security
Product Safety
Safety & Health

Washington Department of Labor & Industry Safety & Health webpage

A Guide to Workplace Safety and Health in Washington State – What every employer and worker needs to know


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