A good way to truly understand your business and risk management program, is to determine your “cost of risk”. Cost of risk (COR) is a combination of business insurance premiums, retained losses, and administrative expenses.
Why is COR important?
COR can help managers better define the success of their business and insurance program. Business insurance premiums are one part of the program. By recognizing these costs, managers can plan and implement management strategies to reduce them.
Here is a good way to start the COR evaluation process:
Insurance premiums — This would include all business insurance including workers’ compensation, bonds, and standard business insurance policies.
Retained losses — Retained losses include any claim or cost under deductibles or uninsured losses. This can be very important. For example, if you thought you were getting a real deal on your insurance because you bid out your insurance and saved $5,000 in premium, only to discover that the new insurance had exclusions which caused you out of pocket costs of $7,000. Not such a good deal after all!
Administrative expenses — These include any cost or expense associated with insurance, safety, workers’ compensation, and the management of them. For example, if you had to hire a safety trainer to help with your safety program, that would be an expense. There may be services offered by workers’ compensation carriers that offset or reduce your administrative expenses. By accounting for these you are better able to determine the best insurance product for your business.
Commercial business insurance is an important aspect of any business that cannot be ignored especially if the business premises are leased or rented. Whatever your commercial insurance needs, we can design a protection program that is right for you.