Risk Management Should Be a Strategic Priority; Yet, Few Business Owners are Prepared
Travelers Insurance Company has released its annual Business Risk Index, a survey of more than 1,100 decision makers at American businesses that seeks to identify their biggest concerns for their companies’ financial stability. While the risks identified are not surprising, that so many of those companies have not prioritized the management and mitigation of those risks is. For each of the most common concerns cited by respondents, resources are available to reduce or eliminate the potential harm to their business; yet, even while acknowledging those risks and admitting that their companies are ill prepared should any risk pose an imminent threat, only about one in four businesses are taking advantage of those resources.
The concern cited by more executives than any other – medical cost inflation – is predictable in light of the current uncertainty within the health insurance market as the federal Affordable Care Act stumbles towards full implementation. Nearly 7 of 10 respondents cited the as-yet-to-be-determined costs to comply with that new legislation as a concern, and 60 percent believe that risk is increasing. It is also the risk for which most executives believe their companies are the least prepared to face. Again, this concern is understandable, and with so many of the rules and mandates of that legislation still undefined and others that were defined being redefined on, seemingly, a weekly basis, the companies’ lack of preparation for this risk is understandable as well.
That’s not true for the second most cited risk – legal liability. The potential costs for a company being found liable for damages due to its negligence are well known and not difficult to calculate; yet, 58 percent of respondents were concerned about those risks. Specifically, the risk of being found liable for professional mistakes was cited by 44 percent of respondents; 33 percent listed injuries and property damage resulting from a traffic accident, and employee lawsuits (discrimination, wrongful termination, harassment, etc.) were a concern for 35 percent of business decision makers.
On the other hand, the next most common concern (53%) – risks associated with information technology – will never be fully understood by many businesses. When the very companies offering solutions for the protection of company data from malicious hackers, malware, and viruses seem to be constantly playing catch-up to those threats, how could average business owners with little IT expertise be expected to identify vulnerabilities in their systems?
Drilling down into the survey data, Travelers found that 59 percent of respondents worry about a virus infecting their systems or some other security breach, losing control of customer records was cited by 44 percent, and 50 percent are concerned that their companies’ computers could simply fail taking their business offline.
One other risk was cited by more than half of respondents (52%) – potential fines and penalties assessed by government agencies for failure to comply with rules and regulations. And who can blame them? Regulatory compliance is a moving target – thousands of new rules are issued each year, and that’s not even counting changes to tax law. That executives lay awake at night worrying about government enforcement is not surprising.
So, with all that anxiety and stress, why aren’t more businesses taking steps to reduce or mitigate their risks? Overall, 48 percent of the survey respondents believe the business environment has become riskier; yet, only 24% claim to place a strategic priority on preventing, preparing for, and responding to those risks. And, most of those that do are large and medium-sized companies. Decision makers at smaller companies are less concerned about risks and less prepared should they occur, even though they would, in general, suffer more than larger businesses due to their more limited access to the working capital that would allow their companies to survive a major setback.
Regardless of the size of your business, risks can be managed. The insurance professionals at Nahai Insurance can develop cost effective solutions for mitigating the unique business risks your company faces. Whether you are worried about rising health insurance costs, legal liability, IT security, regulatory compliance, or any other of the myriad risks the typical business faces, Nahai can structure a solution that protects your company from any eventuality.