It's not unusual for your financial advisor to talk to you about risk management — a plan based on the amount of risk you're willing to take with your money. Should you invest it in the stock market, an IRA or simply put it in a savings account at the bank?
Each of these carries a different level of risk, and only you can determine your comfort level with each of them. You determine where you fall on the spectrum — from cautious to aggressive investor.
Risk management is also part of every aspect of your business. It's the amount of uncertainty regarding loss.
For example, a savvy business person is aware of what the competition is doing, and responds accordingly. If the HVAC industry is moving to home inspections and you choose not to implement these, you risk losing business. Or, you may forecast your cash flow will be tight during the first quarter of the year, so you need to determine the risk to your payroll, creditors, etc.
Every Decision Involves Risk
Risk management is also part of our daily lives. We evaluate our risk with every decision we make. It might be what route we take to work every morning — should I risk possible traffic on the interstate or take the back roads to avoid traffic?
It might be how we spend our lunch hour — at our desks, in the employee break room or at a nearby restaurant. We think about the benefits and consequences of each choice we make. Even in purchasing auto or homeowner's insurance, we have a choice of getting a lower premium in return for a higher deductible.
There is no right or wrong answer. We evaluate our risk factors and our tolerance levels to come up with an answer that's right for us.
It shouldn't be unusual, then, for your insurance agent to talk to you about risk management. After all, that's what insurance is — a safety net for risk.
When you consider the necessary coverage, you evaluate the possible risks involved in your business and how you would pay for them if they occurred — things such as accidents on the job, damage to homes from service calls or faulty products.
The insurance carriers have also reviewed and evaluated the risks by seeking out information on injuries, fatalities, accidents and illnesses.
The Bureau of Labor Statistics cites 918,700 cases involving days off from work due to non-fatal injuries in 2012, with a median of eight days of work missed by employees due to injury each year.
In the HVAC industry in 2012, there were 20 fatal injuries in 637 million hours worked. Insurance carriers will base the likelihood of you having a claim on these statistics.
Law of Large Numbers
According to Investopedia, an online insurance resource, most insurance premiums are based on the Law of Large Numbers and Adverse Selection. The Law of Large Numbers means that the larger the group to be insured, the more certain the predictions.
Insurers want to cover you based on the statistics that apply to everyone in the industry. Insurance companies will spread out their risk across the board to minimize their exposure to loss. They predict an approximate number of claims within a certain group during a certain time period.
Adverse selection is the likelihood that businesses with the greatest probability of loss will buy insurance to cover that loss. A construction business might buy more insurance than an HVAC company, simply because they foresee more incidents of accident or loss in their particular industry.
Insurance companies try to measure the risk and adjust the premium prices charged for that risk. If you've had numerous claims in the past because of unsafe working conditions or careless employees, you are likely to be charged a higher premium.
To avoid these "blanket" premiums, you need to differentiate your business practices from those in the larger group.
Instead of focusing on finding the best insurance policy for when an accident occurs, why not focus on preventing it from happening in the first place? It's important to identify and prioritize items that can help reduce or eliminate accidents.
It's a fact that employee satisfaction is directly linked to fewer accidents and claims. If employee morale is good and workers have a vested interest in the company, they will be more careful.
Studies found that morale was based on four factors:
- How well an employee likes his or her job
- The perception of the company
- The employees feeling about his or her direct supervisor
- Whether or not the employee feels cared about at work
There is a direct correlation between improving morale and fewer losses on the job. If employees feel like management cares about them, they're more careful. More careful employees mean fewer accidents and fewer claims.
You know exactly where the potential hazards lie within your company or industry. It could be areas around your facility that are prone to ice, snow or moisture that can become slippery and cause falls, or possible driving offenses by technicians who are constantly on the road.
It could be back strain from lifting heavy air conditioning units or accidents with ladders while installing a solar heating system.
According to the Federal Occupational Safety and Health Administration (OSHA), the top 10 most frequently cited standards where injuries were reported in fiscal year 2014 were in construction and general industry and included fall protection, hazard communication, scaffolding, respiratory protection, powered industry trucks, control of hazardous energy, ladders, electrical wiring and systems design and machinery and machine guarding.
If any one of these is even a remote possibility with your company, address it proactively, not reactively.
Put a safety program in place. Educate your workforce on proper lifting of heavy objects. Provide incentives to workers who meet safety criteria communicated to them through safety meetings or programs.
Attention to the areas where you are already doing something right, as well as to those areas that you can easily implement a program, helps you to create a positive environment for employees.
These programs make smart business sense and make employees feel like you care about them. For you, it results in both happy employees and solid reasons to save money on your insurance premiums.
Tell your agent about the programs you have in place, or ask your agent for help in implementing programs. Then ask your agent to communicate the results to your insurance carrier. If an insurance carrier sees that you are implementing programs to minimize claims and save them money, they will be more likely to give you a better rate.
Positive business practices, such as employee retention programs, safety programs and new hire orientations show you're making the effort to keep employees happy, which in turn, makes them more careful on the job.
Programs that communicate the rules of the work place and enforce strict consequences also make employees more careful. For example, if you have a well-communicated policy that drug testing is automatic after a workplace accident, and this policy is cited in the employee handbook, then this program is an effective deterrent to drugs in the workplace.
If you provide education and certification training to your employees at all levels, it shows you want to develop them for long-term employment and possible promotions. The certification or continuing education is an investment in them that will not only give them necessary skills to improve on the job, but it will also show insurance carriers that you have a vested interest in your team and their success.
Another good business practice that ultimately results in better morale for employees is a supervisor training program. It helps managers to be more effective, thus making their direct reports happier in the workplace.
All these business practices lead to satisfied employees. If a happy employee equals a careful employee, the business of risk management becomes less risky.
Matthew Stangle is a managing partner at Insurance Force and a member of the Heating & Air Conditioning Contractors Association of Maryland. Matthew teaches safety classes for new HVAC employees. Insurance Force provides business insurance such as liability and workers' compensation, as well as employee benefits such as group health. Visit www.HVACinsurance.net for additional information.