Risk management techniques to limit liability exposure

By Becky Harding, Director of Association Programs, JD Fulwiler & Company Insurance

This article was published in the October 2016 edition of NTEA News.

Risk management is a topic business owners revisit frequently — even if they don’t know it in these terms. How can I protect my company assets from lawsuits? How can I provide a safe environment for my customers and employees? Am I protected in the event my product is unsuccessful? What happens if one of my OEM’s products fail? These are all valid concerns that can be addressed through the risk management process in five simple steps. 

1. Identify and analyze your loss exposure.

Meet with your management team and pinpoint your company’s most vulnerable areas. This could involve your own facility if your shop presents an inherent risk to the public or your employees, or if the general public commonly visits your lobby area or sales lot (if you’re a dealer). For manufacturers of component parts or upfitters, the most likely liability is product. Every business has unique loss exposures. Recognizing them is the first step in proper management.

2. Review available risk management techniques.

Several different methods can help when evaluating liabilities.

• Risk avoidance simply involves staying away from any risky behavior or changing operations to prevent hazards. Beyond eliminating risk, this approach restricts potential as well. It’s also frequently impractical.
• Risk reduction entails typical loss control measures, such as quality tests and inspections, ongoing and thorough personnel training, lock-out/tag-out policies, proper certifications, etc.
• Risk transfer has two common forms. The most popular type is insurance, essentially shifting risk to an insurance carrier for a fee. Contractual language with OEMs and customers is the second option. In this scenario, liabilities are passed to another party by way of hold-harmless agreements, indemnification agreements and the like.
• Risk retention happens when you or your company absorb liability. This is used when risks are either unlikely or the costs of mitigating/transferring liability are prohibitive. 

3. Select the best risk management technique for your exposure.

It’s important to weigh your risk versus reward. You can avoid risk altogether, but at what cost? Is it large enough to invest in reduction testing and training? If you transfer the risk to customers, will they find a different vendor with more generous or ambiguous contractual language? These are all things to consider when identifying proper techniques for your organization. Often, the answers fall somewhere in the middle. By implementing a well-balanced program, you can protect assets and still have a viable, thriving business.

4. Implement the selected technique.

Upon determining the most appropriate course of action, implementation is critical. Management and key employees should be familiar with your choice and effectively communicate the plan to all staff.

5. Monitor program success.

Reviewing the plan is essential to gathering data on effectiveness. If you find the chosen technique is not producing the needed result, it may be time to reevaluate.

Businesses with interested, engaged leadership typically survive even the hardest times. Managing your organization’s risk is essential to staying involved and maintaining control.

Many insurance companies have risk managers to help you navigate liabilities. Ask your agent about available services.