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Understanding the cost of RISK

For most people, knowing their cost of insurance can be figured out fairly quickly. Maybe they look at their policies or make a phone call to their agent, add it up and bam! One thing to remember is that insurance is not the cost of risk, it is simply the cost to transfer risk!

The true cost of risk is not quite so easy to calculate…I ran across a definition of the cost of risk as follows: “The total cost of risk is the sum of all aspects of an organizations operations that relate to risk, including retained losses and related loss adjustment expenses, risk control costs, transfer costs (insurance) and administrative costs”. When understanding the cost of risk it is important to view this from the value perspective vs the price perspective because there are many factors not included in this definition.

Is your insurance program adequate?

Are you paying for risk management/loss control or safety services and is the value there?

Are there any added value services provided by your agency to help offset costs in risk management areas or in the HR department?

Can you depend on your agency for assistance in risk management or are you left to fend for yourself?

How much time are you having to spend on insurance? Which we know everyone loves…

This list can go on and on but in my calculation of the risk of boring people, I will address one at a time starting with “IS YOUR INSURANCE PROGRAM ADEQUATE”: We understand the price of insurance can be a significant bottom line figure but it must also be understood that the cost of an inadequate risk transfer program can be devastating. While there are too many examples to list, gaps in coverage or even overlooking the language in the fine print of a policy can potentially put a company out of business or completely leave an individual’s net worth and assets exposed. This can sometimes be unrecoverable. At the same time, we understand some are more comfortable taking on risk in an effort to save cash on premium and it is our goal to address this on a case by case basis by educating and understanding our client’s risk tolerance and needs.

At Highpoint, one of our core values is understanding that VALUE MUST ALWAYS EXCEED PRICE. We understand that price is vital, but at what cost?? What are you getting for your $$$? Please be sure to partner with someone willing to put the time and effort into helping you understand and manage your risk. No business is the same. No plans are the same. No carrier is the same. No agency is the same. Insurance is NOT a commodity.


Clay S. Fullick

Risk Architect