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Spring Cleaning With Enterprise Risk Spring Cleaning With Enterprise Risk Management

By Kyle Hanson, Director of Business Development, Madison Insurance Group


Spring. It might be one of my favorite seasons. Living in Indiana, spring is the promise that winter is over and summer is almost here. It is the perfect time to begin preparing the yard, planting annuals, and mulching flower beds. It’s the promise of sun, BBQs, and lawn mowing. It’s also the movement out of the depressed atmosphere of an often dreary, not quite wintery winter. Spring, for me, and probably others out there, symbolizes new beginnings; the excitement of new plans and the bustle of new activities that go along with it.

As a business development guy, it is also the perfect analogy for the type of activities from which businesses benefit the most within their annual business cycle. I am not referring to the historical rise of sales that comes from increased consumer spending arising out of the annual newfound promise of leisure, travel, and other outdoor activities. Although of course those consumer trends are a nice benefit. I am talking about the habitual assessment that often comes along with quarter one strategic meetings as well as the assessment of business objectives against the prior year performance statistics. How often does business management find themselves sitting down during quarter one to discuss the strengths, weaknesses, opportunities, and threats that may influence business activities over the next year? It almost becomes second nature.

Well as a risk management guy as well, it also becomes a perfect opportunity to expand the scope of conversation to see how the uncertainties that impact business growth can be better assessed, evaluated, and embraced. That’s right, embraced.

I recognize the words uncertainty, risk, and embraced often do not go hand in hand, but enterprise risk management recognizes the positive influence that taking risk has on an organizations ability to meet its objectives and looks for ways to evaluate it, manage it, and when appropriate embrace it. It also seeks, when appropriate, to transfer pure risks out to third parties, achieved often in the form of purchasing insurances.

I imagine the same could be true for spring. Last year, my wife and I decided to plant a bunch of bushes and trees to help spruce up our back yard. Spring can be a perfect time for this in our climate zone. The weather is appropriately wet, the temperature moderately warm, and the plant life cycle optimally aligned for growing out those roots after transplant. While the uncertainties of spring could provide the perfect environment for growth, there is also, however, the potential downside risk of a sudden late-season snowstorm, bouts of week-long rain, or like last year, a sudden heat wave that spiked the temperature into the 80s the week following planting. Some of this risk is worth embracing, managing, and controlling while others are worth mitigating and transferring.

There are really two main types of risks, speculative and pure. Within speculative risk, there could be an upside and a downside. When we plant in spring, we are using the historical understanding of climate, product availability, and user-temperament to maximize the objective of planting bushes and trees so that they grow healthy. However, with pure risk, there is never an upside; it means the outcome is either neutral at best or a loss at worse. For example, we see pure risk when a sudden freeze, flood, or drought will kill off new plants that have yet to develop the hearty roots needed to stay strong during these sudden weather events.

Pure risk is often known as insurable risk. Uncertain, uncorrelated, pure risk events that might trigger a financial loss often inspires businesses to purchase insurance. Unfortunately, with that said, the process for evaluating insurable risk and then transferring this risk through purchasing insurance is often habitual and will end at the core sets of policies typically acquired by a business within their certain industry. We encourage businesses to go one step farther.

Did you know there are often hidden, catastrophic, enterprise-level risks within every business that can result in a major disruption to net income? Did you know insurances are available for some of these risks as well?

We at Madison Insurance Group call these enterprise risk insurances and are best represented by policies such as loss of business income from loss of a key supplier, contract, customer, or labor force interruption. Our focus is not on traditional property and casualty insurances through which you are accustomed, but low probability, high severity specialty lines. There is, also, a major perk. Our program structure provides a business owner with the opportunity to financially benefit from any positive underwriting profit associated with their insurable enterprise risk.

For us, spring cleaning means an opportunity for businesses to align core operational strategies with strategic objectives while accounting for the uncertainties that might impact the achievement of these business goals. If part of your spring cleaning has not included an assessment of the enterprise-level risks inherent in your line of business and how you could benefit from our program, call us today.

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