IRMI Update—Issue #63
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
April 22, 2003
In This Issue
Colleague,
How large does an organization need to be to justify hiring a full-time risk
manager? This is a question I've been asked many times in my career, and it
seems to come up more often in hard insurance markets such as the current one.
Here is a rule of thumb that has been around for years. Allocate 10 percent
of the sum of all the organization's insurance premiums and retained amounts
(e.g., deductibles) to the risk management administrative budget. If this amount
is sufficient to bring on full-time staff, do it.
Of course, the theory is that a full time manager should be able to save
the organization much more than 10 percent of its direct costs. I would argue
that this is too conservative, however, because it ignores the indirect costs
of losses. As you know, the indirect costs—lost productivity, sales, management
time, etc.—of losses are quite significant. If a risk manager reduces the organization's
insured losses, these unaccounted for indirect costs are also avoided. Thus,
you should probably add in some amount (at least 10 percent) of insured losses
to the equation.
So what do you think? When is a company large enough to establish a full-time
risk management function? Have you developed any rules of thumb? What should
be considered in addition to the financial analysis? Please send your comments
to: My Views.
Also, we are still looking for responses from the United Kingdom, Canada,
Australia, China, Germany, Singapore, France, Malaysia, and Hong Kong regarding
the insurance market there. Let us know by sending your comments to My Views.
All the best,
Jack
Jack P. Gibson
President
IRMI
Update Your Risk Transfer Provisions To Reflect the
Hard Market—Transferring risk by contract is a common and encouraged
risk management technique. However, risk-shifting insurance requirements being
placed on the transferee by the authors of some contracts now border on mind-boggling.
For example, requiring a subcontractor to name the contracting company as an
additional insured is expected, but requiring an edition date (11 85) that most,
if not all, insurers no longer use creates a useless waste of time. You can't
have what doesn't exist.
This is not the only burden placed on those with whom you contract. Waivers
of subrogation, required 30-day notification in the event of cancellation or
material change, and other unusual wording are all attempts by the transferor
to rewrite an insurance contract they did not negotiate.
Review the insurance requirements in your contracts, then poll the insurance
industry (beyond your agent or broker) to educate yourself on what insurance
endorsements and wording are actually available. Insurers have become very aware
of the risks they are being asked to take and are now fighting against giving
so much away. Reasonable expectations gained from this knowledge will avoid
unnecessary work by all parties.
By: Christopher J. Boggs, CPCU, ARM, ALCM, AAI, APA
Account Executive
Commercial Insurance Group, Inc.
Charlotte, NC
cboggs@cig-clt.com
Suggest a Risk Tip. Future issues of IRMI
Update will include more risk tips from our readers. Send us a practical tip
(less than 300 words) for identifying and managing risks, buying insurance,
managing claims, or filling gaps in insurance coverages. Submit your tips. We'll
give you credit for your contribution.
Insert New Expert Commentary Here
See the Gary
E. Bird Horizon Award Winner on IRMI.com—The Gary E. Bird Horizon
Award is presented annually at the IRMI Construction Risk Conference to recognize
an individual who has demonstrated a commitment to improving construction risk
management through the implementation of innovative, cost-effective, and efficient
risk management techniques. IRMI.com has been updated with pictures of last
year's ceremony, information about the winning submission, and instructions
on how to submit nominations for this year. Winners will be announced at the
23rd IRMI Construction Risk Conference to be held November 17–20 in Chicago.
For more information on the award, go to our site. For
more information on the Conference, see the Conference Agenda.
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Two New CE Courses
Now Available on IRMI.com—IRMI is pleased to announce two new continuing
education (CE) courses are now available via IRMI.com on commercial general
liability and miscellaneous professional liability insurance. State approvals
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|
IRMI on CGL |
IRMI on Misc.
Prof. Liab. |
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12 |
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For more information or to order one of these or other CE self-study courses,
see the Training and Education section of IRMI.com.
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