By Gary Pearce

Mar 02, 2023

Last time, we began exploring five often-underlooked consequences that arise from avoidable risk management shortfalls. Today, we finish our analysis with five more hidden factors to consider when trying to improve your organization's risk management outcomes.

 

Cost #6: The cost of slow reporting

“Lag time” — the time that elapses between when an accident happens and when it is fully reported to the insurance carrier for response — is a strong determinant of a claim’s ultimate cost. Research proves that the sooner a case is reported, the greater the opportunity to take difference-making actions. Whether it be a matter of getting the right medical providers involved at the earliest opportunity, or keeping managers from doing the wrong things, or getting statements before witnesses become unavailable or precluding a disengaged worker mindset, reducing lag time produces better financial outcomes for the employer and a healthier result for the employee.

Although the importance of lag time is widely acknowledged, not all companies have adequate source data or the knowledge of how to improve current performance. Just having a metric doesn’t necessarily suggest whether that figure is favorable, let alone give any improvement guidance.

While “traditional” actions, such as ongoing management communication and penalizing business units for late reporting, are valid elements of lag time improvement strategy, companies find greater gains by deploying workflow management technologies. By replacing manual tasks (that get done only when people can find the time to address them) with automation, companies have drastically reduced average lag time. The result is lower average case costs, significant process efficiencies and even fewer cases that escalate to lost work time.

 

Cost #7: Substandard corporate culture

There is surely a “headquarters” aspect to risk management, such as insurance procurement and maintenance of basic claim data. But true risk management is more about the net sum of all the actions taken or not taken by daily business practitioners, both at the management and operations levels. Effective risk management, and the cost advantages that thereby accrue, therefore cannot be divorced from corporate culture.

We have yet to uncover a company that publicly characterizes risk management as unimportant, or that is not an advocate for the safety and well-being of its employees and stakeholders. Yet, companies vary considerably in their risk culture. In some, words of concern are not much more transparent posturing (and are perceived as such by the workforce). In others it is at the very core of their ingrained values, behavior and mission. It’s no surprise that organizations in the latter category are more likely to have a fully engaged workforce, less employee turnover and a lower cost of risk.

Regardless of current state, the challenge is how to make practical improvements in risk culture. Companies are increasingly finding that technology can be a key contributor. For example, tools exist that empower even the day-one employee to perform basic workplace safety assessments by using mobile technology to identify hazards that the employee may not even be aware of. Those same tools then escalate findings to appropriate parties and ensure accountability for problem resolution. By empowering employees to do their job more effectively and efficiently, the organization promotes risk management culture without such words even being said.

 

Cost #8: Lost partnership opportunities

We’ve all heard stories about crises triggered by third parties and their employees. It’s a rare business that isn’t dependent on suppliers and contractors for a major part of its success. Failure to include those parties in the risk management practice can be tantamount to swimming with an arm tied to one’s waist.

Suppliers, particularly those with an on-site presence, must not only be aware of their customer’s risk management priorities, but also well-engaged in their execution. This includes recognizing the potential for the supplier to offer its own value-added innovations. Meanwhile, the customers that businesses should most want to engage are those who treat their vendors as collaborators, not commodities. The ability for the business to contribute to their customer’s own safety and risk management efforts can be a powerful business generation and customer retention tool, apart from the direct cost management opportunities.

One category that might be overlooked in this regard is the company’s own insurers. The insurance company should have a vested interest in helping its policyholders become better risks. It behooves the risk manager to engage their agent or broker to explore these possibilities with both incumbent carriers and those under consideration. In addition to being a virtually free source of assistance and expertise, such collaboration provides the company with a compelling story for future insurance negotiations.

 

Cost #9: Competitive disadvantages

The Covid-19 experience permanently embedded the need for businesses to incorporate risk management into their larger corporate strategy. However Covid-19 wasn’t the only cause or justification: data privacy, employee safety, diversity/equity/inclusion, and information security are just a few of the additional drivers. Risk management is now much more than a cost minimization exercise.

In this new environment, it is not enough to have a holistic risk management program that is resilient, informed and impactful upon the company’s very culture. It is necessary to effectively articulate these virtues to current and potential customers in order to fend off competition and ratify the company’s attractiveness as a business partner.

Organizations can no longer afford the costs and risks associated with substandard risk management, and companies increasingly won’t do business with organizations that cannot pass the baseline test of being a defensible choice, even if something goes wrong.

 

Cost #10: Failure to explore new vistas

Our final hidden cost is the financial and operational burden imposed by failure to exploit the many new opportunities of technology-empowered risk management. As with so many other disciplines, risk management is undergoing a technology revolution, and those not on board with the new paradigm risk being left behind.

Examples are almost too numerous to mention. They include safety wearables that automatically detect and notify of unsafe practices, training tools that are prioritized and triggered by actual loss experience, cybersecurity scoring of vendors, employee screening for employment eligibility, vendor screening for international trade sanctions, travel safety management, automatic preparation of time-consuming OSHA logs, project management tools that flag high-risk disruption possibilities, automated case evaluations, and so much more. 

To be sure, these new vistas are fraught with potential obstacles. Products that don’t deliver on their lofty promises, cost overruns, failure to integrate, reinforcement of unhealthy silos, and inability to adapt to future change are just a few examples. But these are reasons to execute more effectively, not to avoid the venture.

 

Concluding Thoughts

This list of hidden costs is daunting but hardly exhaustive. Risk management has become a standing issue for boards of directors and a permanent way that companies compete for talent and customers. Yet, the typical risk management department was organized around a much narrower, more transactional and less technology-driven business model. Transforming the risk management practice can generate outsized benefits in the way of business returns — in ways hardly thought of in the past. 

It’s time to seize the many new opportunities afforded by state-of-the-art risk management technologies.