Remember the Titanic
Issue #9
June 4, 2007
Titanic was an Olympic class passenger liner that became infamous for her collision with an iceberg, sinking two hours and forty minutes later. Built in Belfast, Ireland, Titanic was the largest passenger steamship in the world at the time of her sinking. The disastrous event occurred during Titanic's maiden voyage, from Southampton, England to New York City.
The Titanic was intended to be the largest, most luxurious ship ever to operate. It was considered a pinnacle of naval architecture and technological achievement, and was thought by The Shipbuilder magazine to be "practically unsinkable." Titanic had a double-bottom hull, containing 44 tanks for boiler water and ballast to keep the ship safely balanced at sea. The hull was divided into 16 compartments by doors held up, i.e. in the open position, by electro magnetic latches which could be closed by a switch on the ship's bridge or by a float system installed on the door itself.
On the night of April 14, 1912, the Titanic struck an iceberg and sank, with great loss of life. The US investigation reported that 1,517 people perished in the accident, ranking the incident as one of the worst peacetime maritime disasters in history.
No single aspect of the Titanic disaster has provoked more outrage than the fact that the ship did not carry enough lifeboats for all her passengers and crew. Titanic could carry a total of 3,547 passengers and crew, yet only carried enough lifeboats for less than half that capacity.
Charting Your Course
When I ask business owners about their risk management programs, the response is usually about how much insurance they have. In reality, insurance is like the lifeboats on the Titanic. Study after study has shown that insurance never fully covers any business loss. When you consider the indirect costs associated with a loss (productivity, loss of use, etc.) it is generally accepted that insurance covers half the total cost.
Now, I am not suggesting that insurance isn’t important (after all, we are in the insurance brokerage business); however, there is a huge return on investment for time spent avoiding those icebergs. I am talking about managing the risks associated with your business. The risk management process is continuous, and includes the following three steps:
Step 1: Identify the risks. Risks cannot be controlled or financed until they are understood. Logically, in order to design an effective insurance or risk control program, you must first understand the risks. This can best be accomplished by an assessment of your four main asset categories: organization, personnel, net income, and property. The perceived risks are plotted on a mapping worksheet depending on expected frequency and potential severity. Based upon the risks that have been prioritized from the mapping worksheet, a strategic plan is developed which includes recommended risk management solutions, responsibilities for implementation, and timelines for completion.
Step 2: Manage the risks. In this step, programs are developed and implemented to reduce or finance the risks. This usually involves a combination of insurance and risk control techniques, such as safety programs, return to work policies, business continuation plans, and more.
Step 3: Monitor the risks. Periodic claim reviews, benchmarking, and cost of risk analysis will help uncover trends that lead to developing future strategies and solutions.
By completing these steps, you will be in a better position to avoid losses, reduce costs, and take advantages of new opportunities that may come along.