Insurance brokers who understand and can offer their clients advice about risk management will gain a competitive advantage, says David Gamble
Any regular reader of Insurance Times will be aware of the debate over the future role and viability of insurance brokers, especially those who serve the small and medium-size businesses that are vital to our prosperity. In particular, should brokers continue to focus on what they do best – finding the most appropriate, most cost-effective cover for their clients? Or should they also offer 'value-added services' that deepen relationships and make them more durable?
Brokers who choose the value-added route should consider risk management in its roundest sense. Offering this kind of guidance will not only make you a valued partner for your SME clients, it will increase the chances of them surviving and prospering.
We have all witnessed apparently successful businesses falter unexpectedly or disappear altogether. In most cases poor risk management is largely to blame.
Indeed, brokers themselves might be at risk. You may think you have nothing to learn about this subject, but the truth is we all do. As a trade association for the profession, Airmic is both a small business and a specialist in the field of risk management. When we recently developed Prorim, an e-learning risk management course for SMEs, I have to admit it was a salutary experience that highlighted shortcomings in our own approach to the subject.
First, though, let's define what we mean by the term risk management. It is the identification and assessment of all risks inherent in an organisation so that its leaders can anticipate, mitigate and even exploit them.
Most people who run successful SMEs are intuitive risk managers or they would not be successful. As businesses become more complex, however, they will benefit from formal processes and procedures and a different way of looking at things.
Brokers are ideally placed to provide this kind of advice to their clients, because insurance is an integral part of risk management.
It is important, though, to be realistic. They and their SME clients have neither the time nor the resources to immerse themselves in risk management theory or to devise gold-plated strategies.
This very point was made at a recent meeting when the risk manager for a large corporation discussed his business continuity plans, which were designed to cover all possible angles. "How," asked a member of the audience, "could a small company possibly embark on such an exercise when it has only a tiny fraction of the resources and expertise that you have at your disposal?"
I could not help thinking of a comment once made by Stelios Haji-Ioannou, founder of Easyjet, "If you think risk management is expensive – try an accident."
The speaker's answer was more accommodating: prioritise by concentrating on mission-critical risks. He suggested that these should be customer relationships, brand (or reputation) and cash flow. Your company may have different priorities, but the principle is undeniable – look after the really important things and the rest should fall into place or at least not jeopardise the firm's very existence.
To take up one of his themes, cash flow problems cause probably more SME failures than anything else. A relatively simple risk management exercise can greatly reduce the chances of this happening. The same is true of another common cause of SME failure, IT risk. It is amazing how many organisations, some of them quite large, fail to take simple steps to protect and back up their data when doing so might save them huge grief and disruption.
It is important, though, to understand that risk management is not just about avoiding the bad things in life. It is also about making the most of your opportunities and full use of your resources. Far from dampening enterprise, it can add to a business's comfort zone and actually encourage risk taking. If you know the extent of the risks you face, you should also then understand their limitations and feel more confident about being adventurous.
A big challenge we face is to lighten the image of the profession. Risk management is seen as theoretical and dull when, in fact, it is based on common sense and can actually be quite entertaining.
With only a small amount of training, any businessperson can carry out the simple desk exercise of identifying the risks they face and then ranking them in terms of likelihood and impact.
You can then make a simple risk map (see box). The risks at the top right hand corner of the box are the most important because they are the most likely to happen and the most severe. You can see at a glance where you need to produce risk reduction strategies.
More enterprising businesspeople may even see opportunities in risks where others see only gloom. I know, for example, of a small hotel in France that suddenly faced competition when permission was given for a much bigger rival to open nearby. Instead of panicking, the owner persuaded the local tourist board to promote the town as a holiday centre. Her turnover and profits went up.
Good risk management can truly be a voyage of discovery. IT
David Gamble is executive director of Airmic. He will shortly become chief executive of Risk Publishing OnLine ( www.riskrisk.com )
Click here to view the Risk Map