What is your Total Cost of Risk?

CHAD TISONIK, CSP, CHCM
Associate Vice President, HNI

Most businesses never consider their Total Cost of Risk as a driver of profit. First, you may not be too sure how to calculate it. Second, the number may not be understandable or worse yet, you may define it as solely your insurance premium. Whatever your understanding may be, it may be a good time to refine your beliefs. Controlling your cost of risk will help make you nimble in your marketplace. Failure to control it will send a shiver through your entire organization.

Def: Total cost of Risk is the Quantifiable costs related to the Risk Management function. 

How does this number affect management decision making?

1. Tracking costs based on sales – year to year
2. Measuring how you are progressing with your RM goals
3. Educating all levels as to the success or failure of the program
4. Quantifiable target for incentive programs
5. Pricing of products and services as market conditions change 

What goes into a TCOR calculation?

Risk related costs

• Insurance cost
• Retained loss
• RM function costs
• Outside services related to safety, environmental, regulatory or RM

Post Loss costs

• Overtime
• Downtime
• Lost production
• Uninsured equipment/product damage
• Lost business due to “bad press” or poor public image

Leaders who get it have recognized that attention to risk beyond premium can take their organization to an entirely new level. Costs can be reduced much more than a negotiated reduction in insurance premium. These leaders are using their Insurance Advisor as a valued team member in concert with their CPA and Attorney. By working with an advisor that has a team of experts who knows your business, your industry and your employees, you put yourself in a position of growth and comfort.