As Your Business Changes, so Does Your Risk; Time to Take Charge?

If you’re like most business owners, you don’t have time for every salesperson who comes to your door--and if the visitor sells insurance, you have no patience, either.

But a good relationship with an insurance broker can pay big dividends, and if you take control of the time you spend with those who come to your door seeking your business, you can do good things for yourself and your enterprise.

Why? For one thing, your broker is the pipeline to your insurer’s underwriter, who judges the risk your business presents and decides what premium to charge you. So if your broker understands your business and its risks, the underwriter will too, and you’ll get a premium reflecting your own risk, not somebody else’s.

For another, these days insurance brokers do as much managing of risk as they do selling of insurance, and the good ones know a great deal about controlling your exposure to financial loss with or without insurance. Indeed, a good broker, calling on services within his or her organization, can function as an “outsourced” risk manager for your business, commonly for fees far short of what you would spend to hire a professional risk manager.

And make no mistake: As your business grows, it assumes new risk, often in ways you may not see. Brokers sniff out risk and find ways either to control it or to transfer it to an insurer in exchange for a premium. Either way, the benefit flows to your bottom line.

Big companies control the relationship with a broker by setting out the rules under which they will conduct business. You can do the same:

* Every two or three years, put your entire insurance program up for bid. In the meantime, tell the insurance brokers who come knocking on your door when you plan to do this, and invite them to return.

* When the time comes, hold a broker beauty contest, as insurance professionals call these things. Tell your prospective brokers what you want your insurance package to accomplish for your business, and give them a deadline for their proposals.

* When the proposals come in, study them carefully. Look for signs that a broker grasps what you need--and pay special attention to ideas that don’t involve the purchase of insurance.

* Meet with the top two or three to hear their ideas and then make your choice.

* Two or three years down the road, hold another beauty contest.

“In my experience,” says John Theiss, a vice president of the big insurance brokerage Sedgwick of California Inc., “it has become the responsibility of the broker to function really as the client’s outsourced arm of risk management in providing services and experience and capabilities that are not readily available within the client’s organization.

“When a company gets involved in any merger-and-acquisition activity,” he adds, “or when it buys or divests itself of property or even just moves from one building to another as a tenant, in every instance it is exposed to potential environmental liability.” In making this point, Theiss refers to Superfund law, which makes everyone involved in the use of contaminated real estate--buyers and sellers, insurers, lenders, even renters of polluted sites--potentially liable for every penny in cleanup costs. To meet this threat, insurers now routinely sell environmental liability insurance even to small businesses at premiums that might surprise you--for example, $500 a year for $100,000 in coverage.

“Very few property transactions don’t require some form of risk transfer these days,” Theiss says, “either because a lender requires safety against contamination on the property or because government regulators want to make sure that someone’s around to pay for a cleanup, or because the buyer itself--that is to say, the business you’re talking about--wants to avoid a hit on the bottom line should the property diminish in value.”

Theiss says it’s important that the broker understand the client’s exposure. Insurance may be only a small part of the effort utilized in controlling the risk.

*

Juan Hovey can be reached at (805) 492-7909 or via e-mail at Jhovey@compuserve.com