Personal risk management starts with a frame of mind that puts an emphasis on protecting something from harm through thoughtful preparation and planning. This is not a passive strategy; it is one that takes time and effort to implement. Every risk management plan is different because it is based on a unique set of factors dictated by a person's lifestyle and asset base.
For example, a person who owns a $2 million home in Connecticut with two cars will have a very different risk management plan from a person who has the same asset base but whose home is located on the coast of Florida. Now consider the person who owns both those homes and has a condo in New York City. Each new asset or risk factor brings a new set of risks that need to be added to the personal risk management plan.
Someone who has a personal risk management mindset will understand and value the need to mitigate risk and be willing to dedicate resources to this endeavor. They will also understand that their plan is not static, but instead, it is dynamic and changes with every new purchase, change in behavior, and life change.
The following characteristics and behaviors are common for someone who wishes to have a personal risk management mindset.
At a bare minimum, being open to learning about risk management strategies is important. Clients and their advisers need to understand that not all risk management strategies will be utilized in all cases, but awareness of those strategies can still be useful.
The decision to implement a strategy needs to be thoughtful and include an assessment of various data points like cost, time commitment, postimplementation maintenance, and other factors. Here are a couple of examples of risk management strategies.
Risk to mitigate: water leaks
Risk management strategy: install an automatic water shutoff valve
Cost: $500–$2000 depending on plumbing system characteristics
Time to implement: varies depending on the plumbing system complexities
Postimplementation maintenance: software updates and normal equipment maintenance
Benefit: significantly reduces the damage caused by water leaks
Risk to mitigate: flood damage from storm surge
Risk management strategy: elevate the home above the base flood elevation
Cost: varies depending on the size and complexity of the job
Time to implement: varies depending on many factors like weather, size of the home, etc.
Postimplementation maintenance: normal home maintenance
Benefit: significantly reduce the damage potential from storm surge and the cost of flood insurance
There are many other risk management strategies to consider when developing a protection plan, and the solution may not always entail spending money on a product or service. A strategy could also be a change in behavior that leads to a safer environment. Examples of this would be avoiding texting while driving or ensuring cars are locked in a garage or locked in the driveway throughout the night. Sometimes, a simple change in behavior can be more effective than buying a product or service.
Once it is determined that a personal risk management mindset will be utilized, the next step is developing a plan that can be executed. The following are three stages to a thorough personal risk management plan.
Each of these areas targets a certain aspect of risk management that should be incorporated into a comprehensive personal risk management plan.
Planning and preparation are the focal point at the beginning of the personal risk management process. This is the foundation of your risk management plan and, therefore, will take some time and energy to put in place. Here are some of the key ingredients in a comprehensive personal risk management plan.
Conduct a risk assessment and insurance analysis. During a risk assessment, the adviser should not only discuss the obvious risks like homes, valuable collections, and cars but also inquire about other areas of risk that may not be as obvious. Some examples include domestic employees, serving on a nonprofit board, traveling for business and/or pleasure, entertaining at home, renting boats and other vehicles through the Internet, and many other types of activities that carry risk. Most importantly, the insurance adviser should take time to discuss liability exposures and offer counsel regarding excess liability.
Work with an insurance adviser who also offers personal risk management services. These professionals typically identify themselves as personal risk managers or advisers and may have the following specialty designations. These designations are an indication that the individuals who hold them have undergone rigorous training in the specialty of personal risk management.
Prepare an inventory. Include the contents in your home, including art, jewelry, and other valuable items. Here is a tool that can be used to assist with this process: HomeZada.
Prepare an emergency contacts list. This is a list of contact information for family members, emergency services, doctors, etc., that may be needed in an emergency. It should be physically printed so that it is available if technology is not working.
Develop an emergency evacuation plan and share it with family members. This is an effort to streamline the process of home evacuation in the event of an emergency. It should identify important documents and belongings that need to be taken in a rush situation to enable a quicker recovery after a devastating loss. Families should conduct practice runs of the evacuation plan and have a target completion time of 15 minutes or less.
Create a family constitution. This is a document created by family members to identify values, responsibilities, and rules that the family wishes to operate under. It will help guide decision-making and provide a common starting point for discussing important family matters.
This is the process of utilizing technology and/or practical solutions to identify risks before they become major issues. Some solutions can automatically intervene in the midst of a situation to prevent a major loss. Here are some examples of strategies that are being utilized to predict and prevent losses.
Install automatic water shutoff valves. This device monitors the water in a home's plumbing system and will shut the water off by automatically turning a valve if it detects a leak.
Purchase a standby backup generator. This will provide an alternative power source if power is interrupted from its normal source.
Install hurricane rated opening protection. This will ensure a home that is exposed to hurricanes can withstand high winds and flying projectiles in its most vulnerable areas, the windows and doors.
Utilize a virtual private network. This solution will provide a secure way of utilizing the Internet to prevent criminal hackers from gaining access to your personal information.
Do not text while driving. Sometimes a simple risk-based decision to avoid potential harmful behaviors can be the best way to avoid a loss. Avoiding texting while driving is an easy decision to make and will significantly reduce the likelihood of an auto accident due to distracted driving.
Review contracts carefully. Contracts are written to benefit the person or business who created them. This means that it is critical to read through them to understand exactly what is involved prior to signing. An example of a situation where a thorough contract review would have protected an insured is when signing a contract for a construction project at home. Some contracts include a "waiver of subrogation" clause. This clause prevents an insurance company from being reimbursed for damages caused by the contractor. Another example occurs when hosting an event and a caterer is hired. The caterer's contract may include a provision that places liability for food poisoning on the host versus including it in their coverage. Taking the time to review each section of a contract will help you prevent losses that you have to pay for. This is also an area where an insurance adviser may be able to help.
After a loss, there are many details to consider and decisions to be made. Most people are not familiar with how to handle a loss situation since it is not something that happens often. Some aspects of a loss to consider include the following.
Even a little bit of planning and research into these questions ahead of time can improve the response time and recovery period in a loss situation. Insurance advisers who offer risk management capabilities will also be able to assist with some of these questions after a loss. For example, they might be able to recommend a disaster-mitigation company to help with cleanup after a fire or coordinate with a rental car company to provide substitute transportation while a damaged car is being repaired. The goal of having a response and recovery plan in place is to reduce the amount of time it takes to get back to the way life was prior to the loss.
Having a risk management mindset will help you and/or your clients get on the right path to developing a personal risk management plan and becoming more resilient to a potential loss. As a personal risk manager, my goal is to help my clients avoid a loss and make sure they have the right coverage in place so that they can recover quickly from loss if one occurs.
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