In today’s complex business environment, managing risk and controlling insurance costs have become increasingly challenging tasks for companies of all sizes. As outlined in the book The 10 Laws of Insurance Attraction, one innovative solution to this challenge is the concept of an Outsourced Chief Risk Officer (OCRO). This article explores how an OCRO can significantly benefit businesses in managing their insurance costs and overall risk profile.
Understanding the Role of an Outsourced Chief Risk Officer
An Outsourced Chief Risk Officer is a professional who brings specialized expertise in risk management and insurance program design to a company on a consultative basis. Unlike traditional insurance agents who primarily focus on selling insurance policies, an OCRO takes a holistic approach to understanding and managing a company’s entire risk landscape.
Large corporations often have the resources to employ a full-time Chief Risk Officer (CRO) who is dedicated to identifying, assessing, and managing the organization’s various risks. Interestingly, even larger companies with in-house CROs are increasingly recognizing the benefits of working with OCROs. These external professionals bring a broader perspective, having worked with numerous businesses across various industries. This diverse experience allows OCROs to identify risks that internal CROs might overlook, as they can draw parallels from similar situations in other companies or sectors. By collaborating with OCROs, in-house CROs can enhance their risk management strategies and gain insights into emerging trends and best practices.
However, most small-to-mid-sized businesses cannot afford the substantial, six-figure-plus price tag associated with hiring a full-time CRO. This is where the role of an OCRO becomes particularly valuable, where an OCRO provides access to high-level risk management expertise without the need for a full-time executive salary. This professional brings specialized knowledge in risk management and insurance to a company on a consultative basis, offering a cost-effective way to implement sophisticated risk management strategies typically only available to larger corporations.
Key Responsibilities of an OCRO
- Comprehensive Risk Assessment: An OCRO conducts thorough evaluations of a company’s operations, identifying potential risks across all areas of the business.
- Risk Profile Improvement: They develop strategies to enhance the company’s risk profile, making it more attractive to insurers.
- Insurance Program Optimization: OCROs design and implement insurance programs tailored to the company’s specific needs and risk tolerance.
- Ongoing Risk Management: They provide continuous monitoring and adjustment of risk management strategies as the business evolves.
The Benefits of an OCRO in Managing Insurance Costs
- Enhanced Risk Identification and Analysis
An OCRO brings a fresh, expert perspective to identifying and analyzing risks. They go beyond the surface-level assessment typically provided by traditional insurance agents. By conducting a thorough Risk Management and HR Assessment, as described in The 10 Laws of Insurance Attraction, an OCRO can uncover hidden risks and opportunities for improvement that directly impact insurance costs.
- Improved Risk Profile
One of the key ways an OCRO helps reduce insurance costs is by improving a company’s Risk Profile. As the book emphasizes, insurance premiums are largely based on an underwriter’s perception of a company’s risk. An OCRO works to enhance this perception by:
- Implementing robust safety programs
- Developing effective employee training initiatives
- Improving facility maintenance and housekeeping practices
- Enhancing quality control processes
These improvements not only reduce the likelihood of claims but also demonstrate to insurers that the company is a better risk, potentially leading to lower premiums.
- Strategic Insurance Placement
OCROs have a deep understanding of the insurance marketplace and can strategically place coverage to maximize value. Unlike traditional agents who might focus on quoting from multiple carriers, an OCRO approaches the market with a well-prepared submission that highlights the company’s improved risk profile. This strategic approach can lead to more favorable terms and pricing.
- Alternative Risk Financing Strategies
As businesses grow and their risk management practices improve, an OCRO can explore alternative risk financing options that may not be available or considered by traditional insurance agents. These might include:
- Higher deductible plans
- Captive insurance arrangements
- Self-insurance for certain risks
These strategies can significantly reduce insurance costs for well-managed companies. Most businesses do not realize that captives and alternative financing programs are now available for businesses that pay over $100,000 in premiums. The threshold for self-insurance has also dropped over the years.
- Continuous Improvement and Monitoring
Insurance and risk management are not “set it and forget it” propositions. An OCRO provides ongoing monitoring and adjustment of risk management strategies. This continuous improvement approach ensures that the company’s risk profile and insurance program remain optimized over time, preventing unexpected premium increases or coverage gaps.
Real-World Impact: Case Studies
To illustrate the impact an OCRO can have, consider the following examples from “The 10 Laws of Insurance Attraction”:
- Wood Products Manufacturer: An OCRO implemented a comprehensive risk management program for a wood products manufacturer facing skyrocketing premiums due to industry-wide issues. By improving safety practices, enhancing dust control measures, and better presenting the company’s risk profile to insurers, the OCRO helped reduce premiums by over 40% in just two months.
- Construction Company: A construction firm struggling with high workers’ compensation costs engaged an OCRO. Over a four-month period, the OCRO improved hiring practices, enhanced safety training, and improved injury management. The business saw a 41% reduction in workers’ compensation premiums and recovered $86,000 in premium errors.
The OCRO Approach vs. Traditional Insurance Agents
One of the key distinctions the book makes is the difference between an OCRO’s approach and that of traditional insurance agents:
- Holistic View: OCROs look at the entire risk landscape, not just insurable risks.
- Proactive Strategy: They focus on improving the company’s risk profile before approaching the insurance market, rather than simply shopping for quotes and promising to help improve risks later on.
- Long-Term Partnership: OCROs work as ongoing partners in risk management, not just during policy renewal time.
- Expertise Beyond Insurance: They bring knowledge in areas like safety, human resources, fleet or DOT safety and compliance, and operations that directly impact risk and insurance costs.
Implementing an OCRO Strategy
For businesses considering the OCRO approach, Leng suggests the following steps:
- Assess Current Needs: Evaluate your company’s current risk management challenges and insurance costs.
- Research Potential OCROs: Look for professionals or firms with a track record of success in your industry.
- Conduct a Trial Assessment: Many OCROs offer initial assessments to demonstrate their value.
- Develop a Long-Term Strategy: Work with your OCRO to create a multi-year plan for risk improvement and cost reduction.
- Monitor and Adjust: Regularly review the impact of your OCRO strategy and make adjustments as needed.
Conclusion: The Future of Risk Management
As businesses face increasingly complex risks and a challenging insurance market, the role of the Outsourced Chief Risk Officer becomes more crucial. By providing expert guidance, improving risk profiles, and strategically managing insurance programs, OCROs offer a pathway to significant cost savings and enhanced business resilience.
The concept of an OCRO, as presented in The 10 Laws of Insurance Attraction, represents a shift from reactive insurance buying to proactive risk management. For businesses looking to gain control over their insurance costs and overall risk exposure, partnering with an OCRO can be a game-changing strategy.
In an era where data analytics and sophisticated underwriting are reshaping the insurance landscape, having an expert advocate who understands both your business and the intricacies of the insurance market is invaluable. An OCRO not only helps reduce immediate insurance costs but also positions a company for long-term success in managing its risk and insurance program.
By embracing the OCRO approach, businesses can transform their relationship with risk and insurance, moving from a position of uncertainty and reactivity to one of confidence and control. This shift not only impacts the bottom line through reduced insurance costs but also enhances overall business performance and resilience in the face of an ever-changing risk landscape.