Strategic Risk Management: How to Go Beyond Insurance and Take a Holistic Approach to Risk Management

As we’ve seen throughout this series, small business risk management is about more than insurance, more than retention, more than exit planning – it’s about shifting the way you think so you can see your whole business.

Business owners need help (myself included), which is why we have business advisors – but not all advisors are created equal.

Many business advisors specialize in one area: compliance, insurance, safety, legal, etc. Most business owners hire advisors on an as-needed basis, which makes sense in the short term, but leaves their advisors siloed from each other in the long term.

Don’t get me wrong, it’s not a disastrous approach. Plenty of businesses operate in this way – which we’ll call the “traditional” way – and get along fine. When a fire breaks out in one silo, they tap that silo’s specialist to put it out and go about their business.

Like I said, it’s not terrible – but there is a better way. 

Today, I want to look at the problems with the traditional approach to small business risk management, and what that better – more strategic – way looks like.

The Problems with Traditional Risk Management for Business Owners

The traditional, productized approach to risk management for businesses is just that: it’s product-focused. For every problem, there’s a solution (that just happens to be a product).

Want protection in case of a fire? Get fire insurance.

Want a lower premium on your workers’ compensation policy? Here are five quotes, pick the one you like.

Want to guard yourself against hackers stealing valuable data from your company? Great, we now offer cyber insurance. 

Want to offer a 401(k) for your employees? We do that, too.

Got a problem? We’ve got a product for that.

Insurance is usually thought of as a proactive planning tool, but the traditional approach to selling it is largely reactive in response to customer needs. 

Additionally, none of these products actually stop the risk from surfacing. Fire insurance doesn’t prevent fires. Cyber insurance doesn’t prevent you from getting hacked. Quoting Workers’ Compensation policies doesn’t lower your E-Mod. 

As we’ve talked about before, strategic risk management is about more than addressing potential hazards. There are business and strategic risks that need to be considered.

For example, if you asked for quotes on commercial insurance from an insurance agency, they would give you quotes and leave it at that. If you asked for quotes from a more holistic risk management agency, they would begin by asking you questions about your business and your plans for the next few years. 

Say that in the course of those questions, we discover that you are planning to sell your business in a few years. Restructuring a business typically includes a lot of changes that will impact your insurance, so we would make sure those issues are addressed and fully understood first before moving forward, thus saving you money and the headache of making a decision now that doesn’t align with future plans.

Another problem with the product-based approach is that it is almost entirely commission-driven, which means it is sales-focused. An insurance agent is only incentivized to sell you something, they have no reason to ever tell you that the insurance you already have is sufficient. 

This is not a knock against insurance agents but against how the system is set up. If the only way to earn compensation is by selling, then you’re going to have an industry full of salespeople. 

But there is another way. 

Strategic Risk Management: The Better Way

A strategic approach requires that you step back and assess your organization within the context of your plans, your industry, your frustrations and more. 

At Ellerbrock-Norris, we call our strategic risk management philosophy ENCORE, which stands for Ellerbrock-Norris Comprehensive Ongoing Risk Evaluation. In short, it’s about assessing a number of risks on a regular basis. You may recognize these risk areas from the last several articles I’ve published:

1. Insurance
2. Employee Benefits & Retention
3. Key Personnel Planning
4. Perpetuation Planning
5. Business Continuity
6. Safety
7. Compliance
8. Contracts & Legal
9. Current & Emerging Risks
10. Strategy

Every one one of these impact areas is interconnected with at least one other area. Compliance impacts safety, which impacts retention, which impacts key personnel planning, which impacts perpetuation planning, and so on. 

By exploring each of these key areas, you are not just insuring your company against potential hazards, you are putting on the armor of preparedness in every area. Rather than shoring up a myriad of silos, you treat your business as a whole. 

In addition, this approach solves the problem of commission by tying compensation to the value of the guidance provided rather than the product sold alone.

Unfortunately, most risk-focused companies fail to look beyond the traditional, product-based approach. As a result, many don’t know where to begin when it comes to holistic risk management. 

So how do you figure out whether your current advisors are up to the task?

Questions to Ask Your Advisor to Assess Their Approach to Strategic Risk Management

The product-focused approach is simple: client requests insurance, agent gathers quotes and presents them to client, client chooses the plan they want. But not everything comes down to insurance.

A strategy-focused agent will understand the need for processes that allow them to work with your other advisors, as well as dig deep into your risk tolerance.

Here are a few questions you can ask your current advisors to see whether they are equipped to provide a strategic approach to risk management or not:

• What process do you use to understand our risk tolerance? What impact does that have on the insurance policies you present to us?
• What process do you use to understand risk across our entire organization for the purpose of ultimately helping us control insurance costs?
• What process do you use to not only understand the risks that exist in our organization today, but also the risks that might exist five to ten years from now?
• What process do you use to discover what is most important to the key leaders in my organization when it comes to risk management for small business owners?
• How does your team go about building plans and strategies with other advisors we’re already working with?

These are just a few ideas to get the conversation started. Be ready to get a few blank stares if you do ask these questions. That being said, there are plenty of agents out there who understand risk on a deep level. Don’t be afraid to look elsewhere if need be.

Want to Talk Strategy? 

At Ellerbrock-Norris, we approach every business like it’s our own using our ENCORE risk management philosophy. Contact us to schedule a time to talk.