Risk Management

Finding Hidden Profits Through Finding Hidden Profits Through The The Risk Management ProcessRisk Management Process

Colin BairdColin Baird1113 West Avenue M-4, Suite C1113 West Avenue M-4, Suite CPalmdale, CA 93551Palmdale, CA 93551Direct Telephone: 661 486-2202Direct Telephone: 661 486-2202Fax: 661 281-4992Fax: 661 281-4992Cell: 661 332-0382Cell: 661 332-0382Email: Email: ColinB@wmi.cc ororRiskmanager@vzw.blackberry.net

Colin D. Bairdriskmanager@vzw.blackberry.net

There Are Five Basic Steps There Are Five Basic Steps To Risk ManagementTo Risk Management

MonitoringMonitoringExamine and Examine and Evaluate The Evaluate The

Results Of Results Of The PlansThe Plans

Implement Implement The Desired The Desired Action and Action and

PlanPlan

Control and Control and Finance The Finance The

RiskRisk

Analyze and Analyze and Measure The Measure The

RiskRisk

Identify The Identify The RiskRisk

The Risk The Risk Management Management

ProcessProcess

IdentifyIdentify The Risk The Risk

• The process of “Identifying and Examining the Potential Sources of Losses Faced By The Organization.”

Process Based EvaluationsProcess Based Evaluations• Step 1Step 1

– “C” Level Executive Meetings To Discuss Commitment To Desired Outcomes• Step 2Step 2

– Facilities and Worksite Evaluations– Risk Checklist and Survey Audits Specific To SIC Classifications– Insurance Policy Analysis– Net Income/Financial Analysis– Compliance Review– Contract Review and Analysis– Policies and Procedures Review (Employment Audits Using Outside Counsel)– Computer Based Risk Modeling To Review Probable Sources and Losses Of Organization

• Step 3Step 3– Comparison Of Client Losses Against Industry Losses

• Step 4Step 4– Baseline Comparison Of Limits of Insurance Against Similar Sized Organizations

A Few Examples of A Few Examples of IdentifyingIdentifying The Risk The Risk

• Checklists

• Insurance Policy Analysis

• Physical Inspections

• Net Income/Financial Analysis

Logical Classifications Of RiskLogical Classifications Of Risk

• Property

• Human Resources

• Liability

• Net Income

AnalyzeAnalyze and and MeasureMeasure The RiskThe Risk

• “The Assessment Of The Potential Impact The Various Exposures Can Have On The Organization”

– Review of potential exposures and the consequences to the organization• Retained Losses

– Self Insured Retentions– Deductibles

• Insured Losses• Uninsured or Unintended Losses

– Unidentified, or previously not considered or evaluated• Benefits of Contractual Transfer of Loss Potential

– Transfer of Risk Through Hold Harmless and Indemnification Language• Additional Insured Provisions• Subrogation Potential and Cost Recovery Methods

ControlControl and and FinanceFinance The RiskThe Risk• Risk Control-

– “An Action To Minimize, At The Optimal Cost Losses That Strike The Organization.”

• 6 Techniques Of Risk Control – Avoid– Prevent– Reduce (Both Before and After The Loss)– Segregation– Transfer-Either Contractual Transfer or Physical– Combination Of Techniques

• Risk Financing-– “The Acquisition Of Funds At The Least Possible Cost To Pay For The Losses

That Strike The Organization.”• Retention-The Acquisition Of Funds From Within The Organization To Pay For

Losses• Transfer-Contractual Or Other Arrangements Where Losses Are Financed From

Outside The Organization– (A) Non Insurance– (B) A relatively Small Known Cost Substituted For A Potentially Larger Unknown Cost

Well, you’ve Identified The RiskIdentified The Risk, AnalyzedAnalyzedand Measure The Risk, and Measure The Risk, Controlled andControlled andFinanced It, Financed It, Now What?Now What?

Implement The Implement The Desired Action and PlanDesired Action and Plan

ImplementationImplementation• Commitment and ParticipationCommitment and Participation

– Senior Management Must Support Plan and Senior Management Must Support Plan and ImplementationImplementation

– CommunicationCommunication• Plan Is Communicated To HR, Management, Bargaining Unit (If Plan Is Communicated To HR, Management, Bargaining Unit (If

Applicable)Applicable)

– Design and StructureDesign and Structure

– TrainingTraining

– AccountabilityAccountability

Monitoring, Examining, and Monitoring, Examining, and Evaluating The Results Of The PlansEvaluating The Results Of The Plans

• Indicators and Measures– Actual Losses versus Expected Losses – Experience Modifiers

• Continuous Tracking

• Regular Evaluations

• Adjustments and Upgrades

• Feedback

Our Markets

• Aerospace and Defense

• Construction

• Manufacturing and Distribution

• Private Family Offices

Recent Success StoriesRecent Success Stories

Recent Success StoriesRecent Success Stories • A Client Had Workers Compensation Losses Double

The Industry Average. As a result his premiums had doubled and profits dwindled.

• We reviewed and made adjustments to the clients loss and safety programs. This ultimately reduced losses to a more acceptable level.

• We reviewed and implemented a formal process for managing ongoing losses. This process included a formal process for subrogating losses back to the responsible party for reimbursement. In turn this improved the clients actual losses which in turn reduced his net cost for insurance

• We hired a Nurse Case Manager to better help manage new losses and properly identify First Aid cases thereby reducing reportable injuries to the client’s insurer.

• Client’s 2005 Premium $600,000 (Ex Mod 179)• Client’s 2006 Premium $450,000 (Ex Mod 150)• Client’s 2007 Premium $250,000 (Ex Mod 95)

Case Study Case Study (The Typical Ticking Time Bomb)(The Typical Ticking Time Bomb)

• Client had same broker for 21 years– 110M Distributor

• Referred by CPA Firm• Upset with lack of risk management by current broker• Contemplating change of risk manager• No consistent risk audit review process for evaluating risk

– Our review and audit demonstrated• Deductibles were too low• Client Dramatically Underinsured For Net Income and Property Values• Complete building remodel 1 year previously including

seismic/earthquake retrofitting• No coverage for pollution indemnification assumed in lease agreement at 4

locations• No insurance certificate monitoring for product distributors• Lack of adequate controls over vendors insurance programs

Risk Management ResultsRisk Management Results• Property limits increased from $47M to $69M• Net Income Limits Of Insurance Increased From $12M to $37M• General liability increased from $15M to $20M• Retained more risk through increased deductibles • Transferred pollution indemnification to current carrier at no charge to client • Transferred more risk to carrier on earthquake values (including loss of income) by

$14M• Negotiated with E/Q company to use the seismic engineering report to demonstrate

significant decrease in exposure of risk resulting in a substantial decrease in pricing $100,000

• Installed insurance certificate compliance monitoring services• Implemented formal contract review process with customers, and distributors• Results

– 2006-2007 Premium $825,000– 2007-2008 Premium $705,000

Case Study #2Case Study #2

• Aerospace And Defense Manufacturer

• 25M In Receipts

• New CFO and Executive Team

• Risk Manager Hired By Private Equity Group

• CFO not aware of coverage's, or lack of them

• Our referral source Investment Banker

• No ongoing review process of risk

Additional Facts Case Study #2Additional Facts Case Study #2

• No contract review– Lease of premises indicated building insurance was lessee’s

responsibility

• Inadequate limits of insurance for loss of income

• No product liability for aerospace or defense parts– Client wanted coverage for specific parts

• No coverage for international operations or lawsuits brought abroad

• Workers Compensation Claims historical review showed solid claims performance

Risk Management Results #2Risk Management Results #2• Properly identified limits of insurance deficiency in loss of

income resulting in an increase in values from 2M to 10M• Properly identified lease terms and conditions to assure

compliance with indemnification, and insurance provisions of lease

• Added specific aircraft product liability and included worldwide coverage for defense, and compensatory damages

• Changed work comp carriers to industry specific carrier• 2006-2007 Premiums $300,000• 2007-2007 Premiums $240,000

Our Best Clients

• Referred By Senior Advisors and Current Customers

• Revenues From $20M Up

• Known or Unknown Problems With Risk

• Looking to “Upgrade Advisors”

• Not aware of current loss problems

Current Targets

• Private Equity Groups

• Plastics Manufacturers and Distributors

• Machine Shops

• Food Manufacturers and Distributors

• How Often Do You Assess Risk In Your Business?

• What Did The Last Assessment Demonstrate?• Did The Assessment Highlight The Hidden Value In

Managing Risk Differently?

3 Lead In Questions For Your Clients

Audience Questions

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