Monetizing the Risk Management Function: Advice for Brokers (and Their Customers)
May 04, 2023
Insurance agents and brokers are in a perpetual search for competitive advantages. However those advantages are hard to come by, particularly in light of cost pressures and the time spent in pursuit of new revenue. How do brokers differentiate themselves with solutions that are practical, effective and applicable to customers of widely differing circumstances?
We present three pieces of advice centered around this theme: the opportunity to monetize the risk management function, and to stop thinking about it as a cost against the bottom line.
Point 1: The Economics of Risk Management Have Changed
The financial evaluation of the risk management function was once somewhat straightforward. Measures such as total insurance cost as a percentage of sales, new claim counts, and changes in liability reserves and posted collateral were often sufficient.
The economics of risk management are now much more complex. As a consequence, the way that the function is evaluated, even from a purely financial perspective, should change as well. Critical success factors such as business resiliency, wage-hour compliance and the ability to prevent and respond to cyber intrusions and data privacy violations are all key cost drivers for many organizations. But the true economics of risk management now go even deeper, into areas such as talent retention and productivity, culture shaping and management, new revenue generation through smart risk assumption, and the public’s perception of the organization.
Risk management is now ultimately about creating, enhancing and protecting shareholder value. The enlightened advisor is helping risk managers reorient their practice in this direction, inclusive of establishing relevant financial metrics. When seen in this light, the risk management function is a business investment with not just a cost but also a financial payback. The effective use of technology is an essential aspect of both the transformation and the institutionalization of appropriate metrics.
Point 2: Identify and Attack Inefficiencies (Including the Hidden Ones)
At a time of lasting talent shortages and immense cost pressures, process inefficiencies constitute more than a lost opportunity: they profoundly affect business results and are a potential impediment to employee satisfaction and retention. Valuable talent, being in short supply and perhaps eyeing other opportunities, needs to be put to its very best use. This includes replacing tedious tasks with rewarding ones.
While the direct costs of process inefficiencies may be rather evident, their influence on risk management results needs to be appreciated as well. One of the more interesting findings of Aclaimant’s research into risk management processes is that replacing manual claim intake workflows with automation can reduce claim reporting lag time (the time between when an accident occurs and when it is reported to the insurance carrier) by some 50%. Lag time is a critical determinant of the ultimate cost of a workers compensation claim. These automations can also ensure data accuracy by removing steps that require rekeying of information, or calculating complicated data fields like data ranges.
Another notable inefficiency is an over-dependence on in-house and carrier-provided technology solutions. The best independent platforms provide compelling advantages in terms of accumulated wisdom and expertise, integration with other technologies, and ability to scale and adapt. They consolidate information from multiple sources, and are essentially carrier-agnostic.
Point 3: Change the Perception of Risk Management By Changing Its Role
The typical risk management operation is looked upon within the organization as a “corporate headquarters” function, detached from daily business operations. It may be consulted (with reluctance) when unusual new opportunities arise, but otherwise, the only time of engagement is when something unfavorable happens or a customer starts asking insurance questions.
At organizations with an active approach to risk management, this perception has changed. The risk management function is an active collaborator with operational leadership, finding ways to make marginal business opportunities attractive, fostering customer safety partnerships, enhancing results by streamlining administrative processes, and giving daily operators the tools to do their jobs better. The traditional “department of no” thereby becomes a true business enabler.
These advanced risk management functions have several things in common.
- They understand that the best results come when risk management is a byproduct of empowering operators to do their job better.
- They are proactive and ruthlessly practical.
- They provide actionable data to their internal users and customers.
- They engage their vendors as partners rather than commodities.
- They deploy the right technologies as the backbone of their enterprise.
- The leaders of other disciplines regard them as collaborators, to be sought out rather than avoided.
The enlightened broker has plentiful opportunities to help their risk management clientele achieve this optimized state. An excellent starting point is to introduce the risk manager to technology that is responsive to the needs of the business, carrier-agnostic, rich in its analytical insights, proven to generate superior financial results and practical to deploy. Aclaimant more than meets all these ambitious criteria.
Schedule a free demo to see how Aclaimant can be the foundation of a transformation of the risk management function for brokers and their clients.
Note: This article was originally published in November 2022, and has been updated for relevance and clarity.