Risk Management: Preparing for the Season

Issue: 
March-April 2009

SPRING IS A HECTIC TIME OF YEAR for me. Arborists are currently reporting their acquisitions and changes in advance of their coming busy period thus keeping copious amounts of paperwork flowing across my desk. In addition to the many vehicle additions, driver (employee) additions and certificate requests (jobs being bid), this is also the time that many clients have their annual insurance renewal. However, too many treat their ‘insurance renewal’ as exactly that. Their time and thought is to renew the existing insurance with a few changes or invest a little extra time into ‘keeping the broker honest’ by shopping for a few alternative quotations.

In 18 years as an insurance educator, I have yet to receive a call from a business owner saying, “I am looking for some ideas and help on how to better manage my risks.” Of course, many do state this need indirectly (asking for insurance manages risks) or unconsciously, my observation is simply that it hasn’t been a primary focus.

Sidebar: Note the above use of the term ‘insurance educator’ as I despise being perceived as an insurance salesman – thank you to Ian Johnston at Arbortech Professional Tree Care for pointing out this difference.

In my professional training, we are taught that insurance should always be the last means of controlling risk – simply for the reason that insurance is a cost while other remedies may be lower cost or even no cost. While what we are taught is quite a sophisticated strategy for developing a risk management program, it can however be kept quite simple. The process is:

1. Identify & Analyze Loss Exposures
While my textbook goes into 13 pages on this, the sum of it all is simply to consciously consider what can be harmed and how it could be harmed. We are all aware that our vehicles could be vandalized but who has thought of the costs to the business due to temporary storage relocation and mechanical repairs outsourcing due to a fire in their own workshop? I’ll buy lunch for the first person who honesty calls me to say ‘yes.’

This step also involves assessing whether a risk warrants any further attention. Sometimes a risk is recognized as a concern so minor that any further consideration is not required.

2. Examine Risk Management Techniques
Once we know what our worries/concerns are, we then can ask, “What can be done about it?” There are four options:

a) Exposure Avoidance
Eliminate the possibility. This is usually not practical – if one is worried about vehicle theft, selling all vehicles will not be a reasonable solution for a tree business.

b) Loss Prevention
How can the chance of harm be reduced? We all know the answers to the obvious issues – lock your doors, install a fence, hire good drivers, etc.
c) Loss Reduction
How can the seriousness of harm be reduced if and when loss does occur? Training staff in the safe operation of fire extinguishing equipment is obvious. How about having a ‘ready to go’ standby contract with an equipment supplier? The ideas here are practically endless.

d) Segregation of Exposure
There are many creative solutions here such as ‘spread of risk.’ Allowing trusted employees to take vehicles home (only if to a place where they are not at greater risk) at night may be better than having them all parked in the same yard.

e) Contractual Transfer
Others may be willing to accept the risk’s legal and financial responsibility. This might be in the form of an insurance policy (which is simply the exchange of an unknown risk for a known premium). Alternatively the use of ‘hold harmless and indemnification’ clauses in agreements with subcontractors is a good idea (if you are the contractor). A ‘waiver of subrogation’ is a good idea (if you are the subcontractor/subconsultant – and the contractor will agree to it).

3. Select Risk Management Techniques
By forecasting both the frequency and severity of loss, an educated decision can be made in selection criteria (effectiveness and economy) of techniques. We all do this when we select our insurance deductibles. Hmm, I save $50 with a $500 deductible over a $300 deductible. That’s $200 more I put at risk but pays for itself after four years of saving $50 with no claims.

4. Implement Techniques
This involves technical decisions and management decisions. Technical decisions involve putting the risk management ideas into place. Managerial decisions are required to ensure full co-operation, especially among other managers or personnel. Employees might not like loading and unloading everyday but it is usually safer than leaving gear stored on trucks.

5. Monitor Results
Are your efforts to manage risk working and if not, what adjustments can be made?

SIDEBAR: HINTS & TIPS

• Require a driver’s abstract with every resume. Don’t hire on the basis that your insurance company will look into it. Too often I have heard of a new employee in the springtime being brought on, introduced and trained only to be found a month or two later to be ‘uninsurable’ at reasonable expense. By this time, finding a replacement employee might be difficult as good hands have already taken positions elsewhere.

• Update driver’s abstracts every 6-12 months. Don’t assume that your insurance company will advise if an employee becomes a problem. There are laws in which an employee caught driving with an unacceptable licensing status can result in your vehicle being impounded (up to 60 days) with only proof of ‘your’ due diligence being a valid request for early release. Additionally the ‘not qualified to drive’ exclusion could create an adverse claim situation whereby you are having to prove to your insurance company that you did not know – and had reasonably attempted to know – whether an employee was properly qualified to drive. The status and record of your drivers is not a matter where ignorance is bliss!

• Keep good backups of information and have these stored off premises (hardcopy or electronic). We all know this is basic operating procedure but then don’t do it. It can be time consuming so if you must skimp, at the very least, ensure financial documents have backups. Revenue Canada is rarely lenient on those who suggest, “My documents were lost in a fire.”

• Put together a formal risk management strategy that is reviewed and adapted from time to time. Learn to view ‘risk management’ as more than just buying insurance.

• Finally, don’t burn bridges, including and especially with suppliers and potential suppliers. Admittedly, this is somewhat of a personal complaint due to a recent experience, not as a sore loser, but as sincere advice. You never know when you might need someone or their services in the future. Treat others the way you would like to be treated is a golden rule of which we all too often need to be reminded. As a significant form of risk management, we should always ensure access to a ‘back up’ just in case our regular supply is disrupted (this includes access to insurance experts – especially those who specialize in arborist concerns).

— Scott McEachern, toscottm@hotmail.com

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