Walking on Eggshells

Enterprise risk management can help your firm survive the economic downturn.

There is an old Irish blessing that says, "May you have the hindsight to know where you've been, the foresight to know where you are going and the insight to know when you have gone too far." While a little Irish wisdom may have prevented today's financial turmoil, what undoubtedly would have helped is a little more attention to risk management.

Effective risk management demands careful and continuous analysis along with practices designed to minimize potential losses. In a nutshell, enterprise risk management (ERM) means analyzing the financial impact of a potential event and determining the most cost-effective way to minimize the chance that the event will occur.

While the waste industry may be less affected by the credit crisis and financial turmoil than other industries, it is no less susceptible to the exposures that come with an ailing economy. For instance, how have current economic conditions affected your customers? Last month, Waste Age reported on how waste companies are feeling the economic squeeze as a result of delayed payments.

November's insurance trend touched on the tendency of insurance claims to rise during rough economic patches. While claims might be paid quickly in a robust economy, people making claims today are likely to meet resistance or even litigation in an attempt to achieve a lower settlement. Work closely with your insurance broker to understand how your claims are managed. This is also an opportune time to re-examine your carrier's reputation for paying claims.

Additionally, in light of the credit crisis and depressed stock prices, public companies are more vulnerable to shareholder lawsuits. Securities class-action litigation surged to a six-year high in 2008, according to a new report by Washington-based NERA Economic Consulting. As of Dec. 14, 255 cases were filed, 110 of which (43 percent) were related to the credit crisis. As a result, firms are taking steps to ensure that their insurance programs are strong, and that they are maintaining sufficient limits to the professional liability of their executives.

Even driving has become riskier in the current economy. Some states are reporting an increased number of uninsured drivers on their roads. This could have dire consequences for the waste firms that share these roads. Consider defensive driving training and additional steps to promote safe driving and accident prevention among your employees.

Despite the gloomy economy, insurance costs continue to be one of the more affordable business expenses. A survey conducted by New York-based Risk & Insurance Management Society and Advisen, a firm that analyzes market data for the commercial insurance industry, concluded that premiums in the property, general liability and professional liability segments all dropped during fourth-quarter 2008. Nevertheless, Advisen predicts that the soft insurance market cycle is nearing an end, and insurance prices could begin to rise in late 2009 or early 2010.

As the economic crisis continues to unfold, the government may mandate ERM, especially in certain industries. However, it is a wise business practice for any company.

Many business leaders making headlines as part of the current financial crisis have said they didn't see it coming. That is where effective risk management could have helped. By reconciling exposures, evaluating risk and determining the best management approach, a company is prepared for all eventualities.

Kate McGinn
XL Specialty Insurance Company