Managing Your Risk
Follow these five steps to risk management plan wellness

By Michael Kelly
Property and Casualty Program Specialist

A sound risk management plan follows a rather simple protocol that bears review and reflection with each renewal season. The degree of risk that your county may be willing to accept can and should vary with insurance market conditions, pricing, coverage availability and the direction of your own trending loss experience.

The risk management process is normally comprised of five distinct steps:

1. Identify risks and exposures facing your county.
2. Analyze these risks and exposures.
3. Establish and then implement risk/loss control measures for operations that lessen the chance and degree of loss.
4. Establish a formal method to financially pay for and fund the cost of risk.
5. Monitor results and then return to the first step to amend and/or re-implement the risk management process.

Step one is considered the most important. Failure to properly identify the exposures facing your day-to-day county operations can be disastrous. Often the exposure that is completely overlooked produces some of the most crippling financial results.

Once you have taken the time to properly develop and list the various risk exposures, it becomes possible to analyze each and rank them in order of priority.

A good safety engineer can help develop workable solutions that address these major areas of concern. Through sound risk control efforts, a county can improve its loss experience by reducing the number of losses and reducing the severity of each loss as well. Reducing both of these variables will have a significant impact on funding necessary to finance the actual cost of your risk.

Counties can finance risk by purchasing insurance through a carrier with minimal or no per occurrence deductibles or employing a large self-insured retention with an excess layer of coverage placed above the retention.

It is the balance of getting a lower initial price by accepting a portion of any loss through deductibles and/or retention weighed against the reduced coverage that makes careful analysis so important. Determining your county's financial position and management's level of willingness to accept risk will help establish default risk financing parameters.

In general, keep in mind these basic risk management tenets during your analysis:

• Never retain through deductibles or retentions more than you can afford to lose.
• When designing deductible or retention levels, never risk a lot for a little, i.e. the amount of premium dollar savings should make sense against the additional amount of financial responsibility you agree to take on.
• Always consider the odds and probability of the likelihood of a given exposure occurring and develop a solution accordingly.
• Never – repeat, never – treat insurance as a substitute for good risk/loss control.

The process and practice of risk management is a developed skill set that can greatly increase a county's ability to statistically project, control and manage the cost of risk. Over time, there will be less variance in loss-related expenses, fewer catastrophic "shock type losses," as well as an increased level of marketability in the open insurance market. All of these will more easily allow your county to buy the right amount of insurance and provide you with the ability to self-insure at a level that makes sense. These steps, in turn, will make the overall cost of risk as low as possible.

Next month we will begin exploring some of the more successful tools and processes that can be used to develop a good list of exposures facing your county's operation.

NCACC Property and Casualty Program Specialist Michael Kelly writes a regular column on risk management for CountyLines. Archived versions of the column can be found online at www.ncacc.org/managingyourrisk.html.