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Risk Management in Tennessee


What is Risk Management?

Most entrepreneurs are risk takers, willing to invest resources with an expectation and hope, but no guarantee, of reward.  But, from the viewpoint of insurance, "risk" is another word for "peril" and refers to things that can go wrong.  Crime, vandalism, fire, a personal injury lawsuit, a computer virus, equipment breakdown, nondelivery of raw materials, death or illness of a key employee—the list of adverse events which can cause economic harm to your business or organization goes on. 

Risk management is a broad topic.  It involves taking steps to minimize the likelihood of things going wrong, a concept known as loss control.  It also involves the purchasing of insurance to reduce the financial impact of adverse events on a company when, despite your best efforts, bad things happen.  No one likes thinking about what could go wrong.  Nevertheless, as a prudent manager, you should understand the risks your business faces.  Until you identify risks, you can’t make good decisions about managing them. 

Risk Management Requires Leadership

Risk management, particularly loss control, begins at the top of any organization. If the head of company makes it a point to emphasize safety, compliance, and lawful and ethical behavior, the rest of the organization is more likely to follow suit. 

Risk management costs money, but the costs of not paying attention to safety concerns and not purchasing insurance can be far higher in the long run than any front-end savings.  While small companies typically do not hire full-time risk managers, risk management should not be left to chance.  Specific individuals should be required to take responsibility for safety and compliance programs as well as for insurance matters. 

Loss Control And Insurance

Effective loss control—reducing the number and size of losses—may impact both the availability and affordability of insurance. 

A business that is indifferent to loss control may have a higher than average number of  insurance claims.  A really poor loss history can make it difficult to find insurance.  Conversely, businesses that actively manage risks, and thereby control losses, will have fewer claims and will often see those efforts rewarded with lower insurance premiums. 

Preventing Fire Losses

Over time, experts have identified the most frequent causes of loss and how to  reduce the extent of damage when accidents occur. 

Reducing Vulnerability To Theft

Businesses face various types of theft, including burglary and robbery by outsiders, theft by insiders and identity theft.
Controlling Liability Risks

A person cannot prevail in a liability lawsuit against your business or you personally unless he or she can convince the judge, jury or other adjudicator that you breached your legal duty to that person.  Examples of such duties include:

  • Making a reasonable effort to maintain a safe environment for the public
  • Refraining from slander
  • Warning about an unsafe condition or product
  • Investigating an employee’s complaint of civil rights discrimination

In general, to reduce liability risks, you must behave lawfully and with demonstrable responsibility for the welfare of third parties—a group that includes your clients or customers, competitors and the general public. Additionally, you must obey a variety of civil rights laws and other laws that give rights to your employees (if you meet the criteria of a covered business).

If you can provide evidence that you took your responsibility seriously and made reasonable efforts to prevent harm to others, you are much less likely to be found liable.  Evidence can be in a variety of forms, depending on the nature of the liability risk. 
Documenting your efforts to behave lawfully can be vital to proving that you are not liable.  

For almost any type of venture, you may find extensive and specific information on reducing liability risk exposures from your insurance agent and insurance company, trade association and the Internet.  Briefly discussed here are some areas of concern that apply to many types of business. They include:

    - Slip and Fall Accidents
    - Employment Practices Liability
    - Hiring Practices and Liability Avoidance

Managing Product Liability Risks

One of the most important ways to reduce potential product liability claims is keeping scrupulous records over the entire life of a product, from design to obsolescence.   In the event of a product liability lawsuit, those records would be very important to show that you behaved with reasonable concern for the welfare of others.          

Risk Management For Information Technology

The greater the role that computers, the Internet and e-commerce play in your business, the more exposure you have to both property and liability risks involving information technology.

Digitally stored information is subject to many of the same risks as any other property (fire, flood, tornado, etc.) as well as special risks (computer viruses, malicious hackers, etc.).  To prevent the loss of your accounts receivables, customer orders, client records or other such data, you should back up the data regularly and often and store the backup copies in a separate, secure location. Prevent data loss or corruption by viruses and hackers by keeping up-to-date antivirus software and firewalls on all your business computers.
Digital technology also presents liability risks.  You could be sued if there is a breach of your security and sensitive information about others is exposed or stolen.  Make sure you use reputable vendors.  You could face a lawsuit claiming that your Web site uses another’s copyrighted material or slanders someone.

Reducing Motor Vehicle Risks

Traffic accidents are the number one cause of on-the-job fatalities.  Effective risk management can reduce the number of injuries and deaths and the potential liability lawsuits that may result from accidents in which  employees were involved. 

Reducing The Risk Of Work-Related Injuries

For most employers the cost of an employee’s work-related injury is covered by workers compensation insurance, which pays for medical care and replaces some of the income that the injured employee lost while unable to work.  There is no coverage, however, for the hidden costs to your organization of that injury, such as reduced efficiency, the cost of training replacements and increased overtime expenditures.  The effects can be particularly pronounced in a smaller enterprise.  For additional information, visit the web site of the Federal Occuapational Safety and Health Administration.  Other useful resources include your insurance agent and insurer, trade or industry organizations and the internet.

Disaster Response And Recovery Planning

Every year disaster strikes a certain number of small businesses, whether it is fire, earthquake, hurricane, tornado or something else.

To reduce the destructive impact of these disasters, you should have a plan—both to respond to the immediate emergency and to get your business operating again, even if your usual premises and business equipment and materials have been destroyed. This requires careful advance planning. You may find helpful the publications and small business planning aids from the nonprofit 
Institute for Business & Home Safety (IBHS), an insurance industry organization whose purpose is to make homes and businesses safer from natural disasters. 

Source: Insurance Information Institute

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