What is Commercial Risk Management? How to Protect Your Business Beyond Buying Insurance

Whether you run a construction business, distribution facility, restaurant franchise, dental practice or anything in between, commercial risk management plays an important role in how you manage your business.

Risks are a constant presence. And they can potentially derail even the best business plans. That's where commercial risk management comes into play. But it's not just about buying insurance – it's a comprehensive strategy to protect your business from a wide range of potential threats. From employee retention to safety procedures to maximizing your business' value to operational risks like equipment failures and supply chain disruptions, commercial risk management takes a proactive approach to identify, assess, and manage risks before they can harm your business.

But how do you go beyond insurance and start managing risk holistically? We’ll start by going through the common misunderstandings of commercial risk management and then provide practical tips to protect your business.

Don't fall into the trap of “let me sell you an insurance product for that.” Instead, discover how to build a commercial risk management plan that’s focused on multiple areas of your business and a trusted advisor, not a salesperson, working alongside you.

Understanding the importance of risk management for businesses

Before we can really dive into creating a commercial risk management plan, you first need to understand what that plan is and why it’s important.

A commercial risk management plan is a holistic, documented process to manage risk within your organization. It is multi-faceted and touches every area of your business – from operations to safety to human resources and every single employee. A commercial risk management plan is not a list of your insurance policies. While insurance plays a role in risk management, it is far from a holistic solution.

As a business owner, you’re constantly exposed to risk — financial, operational, legal, reputational, etc. — that can disrupt operations or lead to significant losses. Rather than reacting when risks create an impact, a commercial risk management plan allows you to be proactive.

Beyond just managing risk, having a plan in place can create strategic advantages against your competition, substantial long-term financial savings and improve the valuation of your business when it comes time to sell — whether internally or to an external buyer.

Organizations that prioritize risk management are often better positioned to adapt to changes in the market, navigate economic uncertainties, and respond to unexpected events. Our end goal is to make risk management not just a protective measure, but a strategic tool that can drive business performance and innovation, allowing you to seize opportunities while minimizing potential downsides.

Part of that comes with regular check-ins to ensure your plan grows with your company. A great example of this can be buy-sell agreements with potential partners. Let’s say you own a business with a 50/50 partner. If one of you died unexpectedly, the other partner would have to buy out the remaining 50% of the business. Often, this can be done through life insurance policies. But if your life insurance policy is for $1 million and the business is now valued at $5 million – how are you going to come up with the balance to pay your partner’s family? Regular check-ins and plan updates would solve for that issue.

We look at 10 areas of risk when building commercial risk management plans. We start with goal setting and your objectives as a company, then we evaluate risk across those 10 “impact areas” – risk strategy, employee benefits and retention, safety, insurance, compliance, emerging risks, contracts and legal, business exit planning, key personnel planning, and business continuity.

Each impact area is just one lever that you can pull to manage the overall risk profile of your company. Take safety as an example. If you are committed to creating a safe work environment, you could lower your workers’ compensation costs, you’ll have a more engaged workforce, your human resources team will be equipped to get employees back to work quickly, and you’ll avoid many potential compliance and legal issues that could arise. Each impact area is needed to collectively create those long-term cost savings and better manage risks.

The insurance dilemma in commercial risk management

We’ve covered the insurance dilemma at length in the past. The biggest problem being that insurance covers just one type of risk – hazard – and doesn’t consider any alternative measures of risk management.

Insurance policies can provide financial compensation in the event of a loss, but they do not prevent risks from occurring in the first place. This misconception can result in a lack of proactive measures to address potential vulnerabilities. A comprehensive risk management strategy should encompass more than just transferring risk to an insurance company; it must involve identifying risks, assessing their likelihood and impact, and implementing measures to mitigate them effectively.

To dive deeper into this, let’s look at property insurance as an example. A policy can protect against physical damages, but it typically does not cover losses related to business interruption, cyber threats, reputational damage or any potential OSHA or compliance problems that may arise.

At the end of the day, the insurance industry is broken. Insurance agents make a commission off selling you a product. If your rate goes up, so too does their commission. Now, that doesn’t mean there are better options out there from an insurance perspective, per say. It just means they system itself has flaws. That’s why you should consider a strategic risk advisor – who can either help you find insurance coverage or work with your current insurance salesperson.

What is a risk advisor in commercial risk management?

A risk advisor, like Ellerbrock-Norris, sits at the center of your risk management plan, connecting you with the services, subject matter experts and other companies needed to create a holistic commercial risk management plan.

We measure risk using our proprietary technology, prioritize immediate needs, develop a long-term strategy, put the plan in place, then check back regularly to re-evaluate your risk measurements. We call this ENCORE – the Ellerbrock-Norris Comprehensive Ongoing Risk Evaluation.

Why is having a process like this important? A risk advisor is often on a team that possess specialized knowledge in various risk areas, including insurance, compliance, operational risks, and strategic planning. Their role extends beyond a yearly check-in and price quoting– they actively collaborate with businesses to develop tailored risk management strategies that align with their unique objectives and industry standards.

Often, businesses think they aren’t big enough to have a risk advisor. But if you are big enough to start providing employee benefits, you’re in a position to start leverage risk management strategies. After all – you now need to keep those employees from leaving, ensure they are following safety standards, and now must understand they themselves can pose specific risks to your business. If you have more than 10 employees, it’s time to start engaging with a risk advisor, even if just on a small consultation level. For example, we offer free risk evaluations for any business with 10 employees or more. Simply fill out our contact us form and we’ll be in touch.

Just take a look at what the difference is between working with an insurance agent vs. a risk advisor.

Identifying and assessing potential risks

The first step in developing a comprehensive risk management strategy is identifying and assessing potential risks that could impact the organization. This process requires a thorough examination of both internal and external factors that may pose threats. Internal risks may stem from operational gaps, key employee turnover, safety training flaws, while external risks can include technology risks, natural disasters, legal challenges and more. By conducting a systematic risk assessment, businesses can create a comprehensive inventory of potential risks that need to be addressed.

To effectively identify risks, organizations can utilize various techniques, such as brainstorming sessions, surveys, and interviews with key stakeholders. A risk evaluation is an important part of identifying – and prioritizing – the risks facing your business.

Additionally, utilizing data analytics and trend analysis can help businesses pinpoint patterns or historical data that indicate potential future risks. There are risk management technologies out there that can help with this. This proactive approach will enable organizations to stay ahead of potential threats and create a more robust risk management framework.

By categorizing risks into high, medium, and low priority levels, businesses can allocate resources effectively and develop targeted mitigation strategies. This systematic evaluation not only helps in understanding the organization's risk exposure but also fosters a culture of risk awareness and accountability throughout the organization.

The ENCORE approach to commercial risk management

The ENCORE approach to commercial risk management is a systematic framework that emphasizes the importance of regularly assessing what impact potential risks could have on your business and managing them appropriately. ENCORE stands for Ellerbrock-Norris Comprehensive Ongoing Risk Evaluation – but if you aren’t working with us you can just call it CORE. Let’s break down what it means:

Comprehensive: This goes back to the insurance dilemma. We often find business owners who say “oh, I have a guy for that” when we sit down with them. The “guy” they are referring to is an insurance agent who sells them a policy and checks in once a year. Comprehensive means going in-depth and looking at multiple areas of risk and how collectively they work together to protect your business.

Ongoing: Businesses grow. They change focus. They change employees. They even can change ownership. Your risk management plan is a snapshot in time and is built for your business today. That doesn’t mean you aren’t thinking about the future – but why pay for the protection of a $10 million business when you’re still in the $1 million growth phase? By evolving your plan over time – an “ongoing” approach – you’re better prepared to manage emerging risks.

Risk Evaluation: How are you measuring success? If you don’t follow a process for creating your commercial risk management plan, then you’re being reactive rather than proactive. We use a proprietary technology called LAUNCH, which allows us to measure each impact area of risk and see how it changes over time.

The process itself is what’s most important. Whether you follow ENCORE or develop your own process, make sure you’re measuring your results and regularly updating your commercial risk management plan.

Taking proactive steps to protect your business

At the end of the day, commercial risk management is an essential discipline that goes beyond merely purchasing insurance.

By adopting a comprehensive approach to risk management, you’re thinking about the long-term success of your business. Your ultimate goal is to protect your purpose, whatever that may be. It’s often the business and the people in it, your life outside of the office, and your future goals. The pursuit of goals is what gets you to your purpose, but risk management makes sure what you accomplish stays accomplished.

If you’re ready to start protecting your purpose today, we offer a free risk evaluation for businesses of 10 employees or more. Get the process started today.