New Trends in Risk Management for Small Businesses Emerging
An unedited version of this article was originally published in the Pittsburgh Business Times on October 14-20, 2016
The monthlong closure of the Allegheny Building on Forbs Avenue due to a fire in July highlights the need for comprehensive risk-management strategy.
“You never know what craziness is going to happen in the world,” said attorney Richard Welch. “Risk management is behind you to protect what you have worked very hard to build.”
Welch, a founding partner of the law firm Welch, Gold, Siegel & Fiffik PC (LegalShield provider firm in Pennsylvania), which is located across the street from the Allegheny Building in the Lawyers Building, said the closure must have been a frightening experience for employers that did not have business interruption insurance to cover lost income.
That’s why it’s essential for business owners to prepare by taking out insurance that covers liability, fire and employee theft, he added.
Welch also is a landlord: he owns 18 properties in Pittsburgh. He said he’s never had any large claims against him, but added a case against two other local landlords reinforced the importance of liability insurance, which protects businesses from claims such as bodily injury and property damage. Someone was seriously injured on one of the landlord’s properties and, without insurance, he would have been wiped out, Welch said.
“It’s one of those things that strikes fear into your heart,” he said. “People do crazy things, and crazy things happen.”
Why it’s important
Risk management is more than just liability and business interruption insurance. The overall purpose is to identify, quantify and implement strategies to address hazards in a particular business, said Paul King, a risk management consultant at KeyBank. Businesses of all sizes should prepare for risks and do as much as they can to mitigate them, he said.
“As unpredictable as it may seem, it is also predictable that some form of loss or injury will take place in every organization at some point in time,” King said. “The easiest way to quantify risk management is in dollars and cents.”
King recommended employers not only purchase insurance to protect against hazards, but also urged them to utilize outside experts who can identify risks that haven’t been anticipated. Risk management also should be an ongoing process, and employers should periodically revisit the way they operate, he said.
“While a company may not always be able to eliminate a catastrophic event, it can, with a proper risk management assessment, minimize the aftereffects of a significant event and ensure the suture of the business,” King said.
Rich McElhaney, assistant vice president for safety and risk management at downtown-based Allied Insurance Brokers, said having a good risk-management strategy is especially important for small companies because they can’t absorb incidents in the same way bigger businesses can.
“A couple injuries or one big one could put them out of business,” McElhaney said.
Although risk management is not a new concept, new trends have emerged in the past few years.
King said new technology has made it easier to gather historical data, which has made risk-management programs more efficient and effective.
More companies also are increasing security and preparing for active shooter situations, McElhaney said.
Cyber liability insurance also has become more common in recent years, especially after hackers stole credit card information from Home Depot in 2014 and Target in 2013, said Josh Heebner, a partner at Element Risk Management.
In such cases, a cyber liability policy will cover the cost of credit monitoring and identity recovery services for customers whose information was exposed. Heebner said such services can be very expensive, and a cyber liability policy would more than pay for itself if customers’ personally identifiable information was compromised.
However, smaller businesses often feel like hackers are unlikely to target them because bigger companies present more profitable targets, Heebner said.
“Hackers love hearing that,” he said. “If I’m a hacker, I’m going after the small guys. The bang might not be as good, but it’s a lot easier task.”
Although new insurance products are valuable, it’s also important for businesses to make sure they implement basic risk-management strategies as well, Heebner said.
That includes creating and adhering to a robust employee handbook and implementing a fleet-management program.
However, sometimes it’s difficult to convince an employer to prepare for certain risks unless they’ve experienced a loss firsthand, Heebner said.
“There’s always a cost to address a risk, but there’s also a cost for doing nothing,” he said.
Paul Glasser is a freelance writer.