Cost Reduction Strategies – Identification of Exposures, Property Exposures

by R. Scott Wolff, CIC, CRIS, Premier Risk Management, LLC.
We know from speaking with clients that one their biggest concerns regards the identification of property exposures and risk. Some of the first questions out of the box might be “are we carrying too much insurance, too little?”; “Have we identified all of the exposures?” While the answers to these may appear to be obvious and apparent we can assure you that they are not. And while this may appear to be a blinding grasp of the obvious, what is less apparent is what the most successful firms are actually doing to address this challenge.”

Whether you are a very small company or a large multi-national organization here are few things to keep in mind when assessing your property exposures:

  • When reviewing certain hazards such as earthquake, consider what is below ground like the foundation itself, utilities and stored business property.
  • Local ordinances, building codes or environmental requirements may be enforced whereby you might be required to demolish partially damaged buildings in order to completely rebuild with property that complies with current building codes.

If that happens that is considered an indirect loss to the undamaged portion of the building, not a direct loss. Your loss now includes the value of the undamaged part as well as the cost of tearing it down and removing the debris.

  • In measuring the extent of a possible business income loss be sure to calculate the time required rebuilding and getting back into business but also the additional time it may take to win back customers that have gone to the competition during your downtime.
  • Don’t overlook such things as, buildings or additions under construction, alteration or repair; tanks, towers, stacks, chimneys, windmills, waterwheels or smokestacks; wharves, piers, pilings and docks; retaining walls of any type; foundations, excavations and underground property of all kinds.

Just by these few examples you get the idea that there is a significant amount of exposure that can escape your immediate attention. You may be asking why is the issue of risk and exposure identification being addressed in a “Cost Reduction” newsletter?

Look at it in this way – if you suffered an uninsured loss (one you expected to be covered under your insurance policy) that loss would in effect be transferred to your balance sheet.

For example, the value of the undamaged portion of your building was $500,000.

A local ordinance required you to tear down the undamaged portion of the building. The insurance company does not pay you a dime because you had no coverage for that exposure.

So instead you had to pay the $500,000 out of your pocket, either cash or a loan. We’ve seen this happen and it’s ugly.

Bottom line – By addressing your exposures and risk upfront you will reduce your costs in the long run.

For more information on this or other insurance and risk management topics please contact us by visiting our web site at www.premierriskmgt.com – Thank you!