How an Effective Business Risk Management Framework Improves your Insurance

Most businesses have some form of risk management framework, but how do they measure up? An effective risk management framework should help you understand your risks, give you confidence in how effectively you control those risks and enable increased assurance that you will achieve your objectives.

Business insurance options and pricing can be optimised by an effective risk management framework which demonstrates how a business is proactively and productively addressing their business risks and exposures, which in turn helps to gain cover from insurers. This is especially valuable for business insurance buyers experiencing the challenging reality of a hard market where insurer cover, terms and available options are constrained and more expensive.

Gallagher works closely with ABM Risk Partnership, a specialist provider of risk management services, and together we have supported many clients in achieving excellent results, including one client halving their insurance spend while expanding coverage across all classes of cover. This was built off the back of a commitment to increasing risk management maturity, and a carefully developed and executed engagement with underwriters.

What's included in a business risk management framework?

In a nutshell a Risk Management Framework provides a method for identifying risks, profiles how effectively your business manages risk, the attitudinal risk culture and business or industry state of maturity, and your commitment to an effective risk control environment.

ABM Risk Partnership believes that while the details within the framework must be bespoke to the specific needs of a business, there are key elements that are fundamental to all businesses:

• risk management policy — the mandate
• risk appetite statement — setting boundaries for smart risk taking
• risk principles — what we do and why
• risk management standards — who and how
• business resilience — emergency response, disaster recovery, business continuity, crisis management
• governance — effective oversight.

The risk management framework provides the important detail that enables you and Gallagher to maximise the value of the engagement with underwriters, resulting in better insurance cover, better premium prices and less exclusions.

Here's an example of a risk management framework developed by ABM Risk Partnership:

Brett Palmer, Founding Partner at ABM Risk Partnership, says an effective risk management framework that works for all businesses needs to be comprehensively detailed but delivered in a way that makes it simple to apply.

It must contain some key elements — risk policy, appetite, principles and standards. It's the standards that contain the details of how risk management is executed and who by. The framework must be highly adaptable, and scalable, and we've worked with many clients who have embraced it to make it work, building as they grow their capability and maturity.

Can your business benefit from a risk management framework?

Whether a business wants to develop and implement a risk management framework comes down to the organisation itself. For many it's not a question they even need to consider — they know they need it, so it's more a question of how to maximise the outcome of the risk management commitment already made.

Other businesses may take a more informal approach to a risk management framework and processes but this is often inadequate. After a serious incident (a workplace injury, cyber attack, fraud, product failure etc) when the hard questions are asked about what you did to manage the risk effectively you could be exposed to stakeholders and insurers as taking a weak approach to managing your business risks.

The role of insurance in risk mitigation and management

Risks that can't be controlled completely in house via proactive management may be transferred from your business to an external party — and that's the role of insurance in risk management.

Before an insurer provides cover on these types of risks they will want to see evidence of your existing business risk management. Having a risk management framework in place helps provide assurance and may be reflected in the cost of premiums for cover.

Through our relationship with ABM Risk Partnership we can assist businesses with developing and implementing a risk management framework.

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