COST REDUCTION

INSURANCE AND RISK MANAGEMENT

The sole purpose of your insurance program is to transfer the insurable risks you do not wish to manage internally to a third party (an insurer).

To understand how well your current insurance program is working the first thing we need to understand is - what are the ‘insurable risks’ your business is facing today?

Your current broker’s first task in representing your best interests is, at a minimum, to identify your ‘insurable risks’.

Your broker will then agree with you on how well you are managing these risks and determine your risk appetite (the amount of risk you wish to retain as a deductible).

This is a must as it is the only way to know what insurance policies you need to purchase in order to transfer these risks, what your indemnity levels (coverages or sums insured) should be, and for your preferred broker to determine your retention levels (deductibles).

All businesses face risk, which are those unexpected events which may prevent the business from achieving its goals.

Best practice corporate governance requires both insurable and uninsurable risks to be identified, assessed and managed.

Purchasing insurance is not ‘risk management’. Insurance is actually ‘risk transfer’. You have, when you purchase insurance coverage, made the decision to transfer this risk to a third party rather than to manage the risk yourself.

Once you pay that annual insurance premium, this money (known as risk capital) is lost to the business forever. To optimize your risk capital expenditure, and not waste critical capital, you need to understand how efficient your current insurance program is in transferring the ‘insurable risks’ you do not wish to retain and manage to insurance companies.

By working with the Lion Partnership, a global insurance cost reduction and risk management consultancy, CF&W will help you achieve the objective of optimizing your risk capital expenditure by providing you with a Risk Transfer Program Gap Analysis. This analysis will show you if there are any duplications or overlapping coverages and most importantly gaps in coverage. An example is shown below.

The Gap Analysis will be a part of our Technical Review of your current insurance program.

It is essential that your ‘insurable risks’, at a minimum, have been identified by you or your broker to enable the gap analysis to be thoroughly completed.

Risk Identification, Assessment & Management

Effective corporate governance requires risks to be identified and managed. Effective management of risk enables business to not only minimize the down side of risk but at the same time leverage the upside of risk, to maximize its business opportunities and optimize risk capital expenditure.

Once the risks facing the business are identified they can be then be divided into either ‘insurable risks’ or ‘uninsurable risks’.

By undertaking a gap analysis of the ‘insurable risks’ the effectiveness of your current insurance program can be determined.

Armed with knowledge of your ‘uninsurable risks’ you then know what risks to avoid, transfer by contract or attempt to mitigate.

You can develop a risk management plan to ‘treat’ the risks you have identified. Constant monitoring is then required as risks evolve.

Once the technical review and gap analysis are completed, the effectiveness of your current insurance program is determined and The Lion Partnership process will now benchmark your Indemnity / Coverage Levels, Deductibles, Premiums, Commissions and Fees against peer group businesses.

Technical Analysis and Benchmarking

The key to optimizing risk capital expenditure is to regularly benchmark, not just your premiums, but also your indemnity levels, deductibles and cost of risk based on revenues or employees.

If you are over-insured you waste risk capital year after year. If you are underinsured you run the risk of an uninsured event requiring an unplanned significant capital contribution.

Benchmarking Peer Groups / Measuring Savings

Benchmarking is a very effective tool used in determining where your program stands in comparison to peer groups. Peer groups are determined based upon similar, but not necessarily exact, common factors producing valid and valuable correlations. Benchmarking is not an actuarial science as no two companies are exactly alike.

Savings are always measured on a ‘like-for-like’ basis. Savings are the difference, increase or decrease, in rate per $1000 in property values, revenues or payroll etc. These rates are used to calculate and agree the actual savings. If the Value Insured or Deductible changes this difference is taken to account. For example, if the current deductible is $10,000 and we agree that you should be carrying a $50,000 deductible, the savings are based on the $10,000 deductible. By choosing an option identified by TLP (i.e. $50,000 deductible), you not only experience the added value of the expert services of The Lion Partnership but also retain 100% of the additional savings achieved.

Gap Analysis and Coverage Review

Gap analysis is a simple management technique used to evaluate the of your risk transfer (insurance) program. Once the major risks have been identified (Risk Profile) these risks can be split into insurable and non-insurable risks. The insurable risks can then be analyzed by a simple matrix allowing your preferred broker to demonstrate the effectiveness of the insurance (risk transfer) program they manage for you.

As a part of TLP’s Technical Review, your major policy wordings including endorsements and exclusions will be examined in relation to the ‘insurable risks’ you are intent on transferring.

This analysis will ensure your broker has negotiated for you the widest scope of coverage available to enable the most equitable settlement of incidents which may result in a claim, thus ensuring the maximum performance of your insurance program.

We can also provide the expertise to assist with Business Interruption reviews including the adequacy of your existing policy limits in regard to Gross Profit or Gross Revenues or Gross Rentals, Payroll, whether or not it should be fully insured, Claims Preparation Costs, Additional Costs of Working, adequacy of the Maximum Indemnity Period and Extensions of Coverages.

The Business Case

The Lion Partnership (TLP) is not a broker and does not compete with your incumbent broker. TLP is totally independent of all brokers and insurers and can confirm that our advice to you is always independent, impartial and unbiased. There is no requirement to change your incumbent broker to benefit from the TLP Insurance Review Process. Seventy percent (70%) of the time the incumbent broker does not change and ninety percent (90%) of the time the incumbent insurers do not change.

Calvetti, Ferguson & Wagner clients, through TLP, receive substantial coverage improvements with eighteen percent (18%) average reduction in cost. Major program improvements and cost reductions are achieved by focusing on your broader risk management program and not on simply ‘selling’ insurance. A major benefit from a TLP review is the assurance that your preferred broker is your advocate and not the agent of any insurers. The review also provides complete transparency of your business relationship with your preferred broker.

You have a choice of a contingency fee model which offers our guarantee of no savings / no fee, or alternatively a fee for service model, or a combination of both. The choice is yours. Under the contingency fee model there is absolutely no fee unless we deliver premium cost savings.

TLP will optimize coverage, broker/insurer service and premium savings. ‘Like for like’ coverage, broker service and insurer security is assured. You are not required to select the option which simply offers the maximum savings. Coverage always must come first, service second and premium savings third.

During the 24 months process TLP will transfer their knowledge to your business so at the end of the project period your selected staff has a complete understanding of the TLP process. TLP will undertake all the work on your behalf minimizing your management time involved in the insurance renewal process.

You can be assured that following the conclusion of the TLP project you have knowledge of world best practice in risk management corporate governance and have optimized your risk capital expenditures. You will know where your business stands in relation to your peer groups in respect of indemnity levels, deductibles, premiums, broker fees, commissions and coverages.

Initially we will provide you with the Preliminary Benchmark Report and, if savings and coverage improvements can be made, we agree to move to the next stage. This stage includes; TLP’s management of the RFP process, analysis of the RFP responses, TLP’s technical review, benchmark and gap analysis and recommendations. TLP will manage two years’ renewals to ensure costs do not increase in year two and oversight of your preferred broker’s and insurers’ performance for 24 months.

Calvetti, Ferguson & Wagner is not a licensed insurance broker or underwriter and does not provide any advice regarding insurance. These services are provided by The Lion Partnership.

For more information contact Marcus Wagner at 713-895-9394 or mwagner@cfw-cpa.com.

	CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS

Calvetti, Ferguson & Wagner, P.C. - 13105 Northwest Freeway, Suite 1250 - Houston, TX 77040 Phone 713.957.2300 - Fax 713.895.9393 - general@cfw-cpa.com