Good risk management can prevent many insurance claims
In brief - Your insurer will love you if you take risk management seriously
Know your own business, know the laws that affect it, keep good records, have a robust credit risk approval system and take risk management seriously.
Foresight is better than hindsight in preventing insurance claims
As an insurance litigator and former senior claims manager of a large Australian insurer, I have seen many professional indemnity and Directors' and Officers' insurance claims land on my desk that could have been prevented.
And I've shared the stress and sleepless nights of clients or insureds as we have worked through the allegations together and launched the process of collecting evidence to put together a defence.
On many occasions, whilst interviewing and discussing those claims with senior managers and executives, it has become apparent that some simple risk management techniques might have resulted in preventing those claims altogether or at least put those companies in a better position to be able to respond to those claims or defend them.
Over the past 20 or so years in the insurance industry, I've lost count of the number of times I've heard the words "with the benefit of hindsight, we would have done X".
What those people were really saying was "we should have taken the time to understand risk and taken steps to minimise claims."
Importance of risk management
Why is managing risk important? Because claims can have a personal, financial and reputational impact on companies and personnel that is often not appreciated until a claim occurs.
For example, a director or officer might be personally named in a claim and have to defend it, or litigation could result in an adverse court judgment and/or negative publicity. Additionally, such claims increase the cost of insurance for your company.
Eight simple steps to managing risk
While risk management is a broad and complex discipline, following a few simple risk management techniques can make all the difference in preventing or defending claims.
1. File notes
Employees and managers across the organisation should be instructed to take detailed file notes of all important conversations, telephone calls and conferences. These contemporaneous records are imperative in managing claims, disputes and litigation. Follow up those discussions with a letter or email to further bolster the content of those discussions or conferences.
2. Keep the originals
The original files notes should be kept in a secure and easily accessible location.
3. Document management
Strict protocols should be implemented across the organisation to ensure that documentation is properly maintained and managed. This includes client contracts, supplier contracts and terms of business.
4. Directors and officers
Directors and officers should ensure they are well aware of their duties. New directors should attend courses to learn about those duties. Organisations like the Australian Institute of Company Directors and Women on Boards run courses for aspiring directors.
Awareness of your company's operations and key business activities is imperative, as is knowledge of the various laws and regulations which govern areas like OH&S, environment, consumer protection, privacy, tax and corporations law.
5. Growth and expansion
If you are expanding your business, ensure that a properly thought out risk management programme is implemented across that growth.
6. Develop a credit policy
Avoid risky customers and transactions by developing a credit risk approval system and credit policy. More and more these days, customers are making cross claims alleging breach of duty on the part of companies as a way of avoiding paying their bills.
7. Adopt a risk management programme
Senior managers, directors and officers should ensure that their company takes risk management seriously and should implement a risk management policy across the organisation.
Individual managers should adopt a challenging mindset and ask questions about risk. Don't make assumptions. If you are a small organisation without in-house counsel, get external advice. Get the right insurance coverage in terms of both quantum and business activities. Find an insurance broker to help get the right cover.
For companies implementing a risk management policy for the first time, Australian/New Zealand Standard 4360:2004 Risk Management published by Standards Australia and Standards NZ 'provides a generic framework for establishing the context, identifying, analysing, evaluating, treating, monitoring and communicating risk.'
8. Work with your insurer and get advice early
Your insurer is in the business of insuring risks and providing peace of mind. It goes without saying that your insurer will love you if you are a good risk or if you do everything possible to manage your risk.
And if something goes wrong, or looks like it might go wrong, don't wait. Notify your insurer immediately and get early advice.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2023.