Enterprise risk management should be what the name clearly states:
- Enterprise: Covers the entire enterprise
Risk: Considers all risks/threats to the enterprise
Management: Deals with risk avoidance/mitigation and dealing with risks if they occur, both during the crisis stage and the following recovery stages.
Most organizations have some insurance coverage, if only Property and Casualty (P&C). Many have Directors and Officers insurance and some have Business Interruption insurance.
These coverages are only the tip of the proverbial ice berg.
The problem is, insurance also is a risk.
The risks with insurance are several.
- Is there enough insurance; like Goldilocks and the bears’ beds, is the coverage too little, too much, or just right?
Are all the insurable threats covered, or are some simply not worth coverage?
Is the insurer’s financial resources deep enough to assure payment even if your organization is but one of many simultaneous claimants?
Are there a time limits on how soon a claim must be made and when it must be paid?
If there is a dispute between the insured and the insurer, how is it to be resolved and in what jurisdiction?
As with all things ERM, there are two sides to every coin.
One of the greatest risks is a lack of understanding of the “small print.”
Does the insured comply with all of the policy’s requirements? Does anyone in the organization really know and understand the policy’s requirements?
Insurance policies are created by lawyers and insurers.
You need a lawyer who specializes in insurance coverages and an insurance expert, someone from the field. Not, however, a salesman. The insurance side should be represented by an independent insurance adjuster. Finally, these two people must be willing, and able, to work together and to present their findings in a report prepared in a language that management – and the practitioner - can comprehend.
According to an article titled Counsel's Role In Insurance Risk Management by Finley T. Harckham of Anderson Kill & Olick, P.C. ( http://www.metrocorpcounsel.com/articles/23475/counsels-role-insurance-risk-management), “Insurance policies are complex contracts, and pursuit of an insurance claim is often a high-stakes, conflict-ridden endeavor. Yet all too many companies entrust their assets and their very survival to insurance policies that are never seen by their attorneys, and pursue claims without the benefit of counsel's evaluation of the company's contractual rights. In-house counsel have an important role to play both when insurance is obtained and when claims are pursued.”
Harckham recommends six points to consider when considering insurance:
- Analyze Insurance Policies Before Coverage Is Bound
- Law and Arbitration Provisions
- Manuscript Provisions
- Review Insurance Applications
- Evaluate Coverage For Any Important Claim
- Law And Forum Selection
He defines and details each of the items in the article (ibid.)
While Harckham’s focus is on the specialist attorney, he maintains that “An attorney's review of the company's insurance policies is not as daunting a task as it might first appear, at least after going through the exercise once. Most policies consist largely of standard forms, many of which remain largely unchanged from year to year. The insurance broker can be asked to identify all changes in coverage. Moreover, excess policies often "follow form" to primary policies. So, reviewing higher-layer policies in a tower of insurance is typically far less involved than gaining an understanding of primary policies. However, care must be taken to ensure, if possible, that excess policies do not have less advantageous terms, and that if they do, any policies at higher levels do not follow form to them.”
An independent insurance adjuster’s primary function is to work on the insured’s behalf to make a valid claim. Because of this, an adjuster should be included in the policy review team, even with a lawyer specializing in insurance as a team member.
The purpose of insurance is to assure that the organization remains financially viable and able to continue with “business as usual.” If it does not, the premiums are wasted money.
Engaging experts for insurance reviews before the contract is signed is akin to getting specialists’ opinions before undergoing major surgery. On a less critical level, engaging experts to examine property before purchase; is it up to standards, what about radon, is it in a flood zone, etc. Bottom line: It’s a good business practice and common sense; put in a way lawyer’s like, it is “performing due diligence.”
Practitioners would do well to take a couple of minutes to read through Harckham’s article so they can at least "encourage" management to seek specialists' expertise before signing on the dotted line.