In the construction management trade, traditional risk management focuses on what is often referred to as “hazard risk.” This generally deals with either accidental or fortuitous losses. In either case, these risks involve the potential for loss without any corresponding possibility of gain. Business risk, on the other hand, deals with the risk of conducting business. If your client is investing in a new piece of machinery or equipment, or acquiring another entity, this is a prime example of business risk.
The broker should present all the reasons why construction management liability insurance is a necessary coverage pertaining to this industry, specifically due to the types of risks that exist. Meanwhile, in its simplest form, risk management involves the identification, evaluation and management of a company’s exposures to loss. A loss exposure is defined as any condition that could result in financial loss to an organization.
The primary function of risk management is to protect the assets and financial viability of the company, as well as to lower the total cost of risk. Therefore, risk management attempts to mitigate the occurrence of losses. In the event certain losses do occur, there is a need to have proper coverage in place to assure that adequate funds will be available to cover those losses.
Effectively managing risk
Someone should be in charge of managing the company’s risk, whether or not someone has the official title of “Risk Manager.” The first step in an effective risk management program is to designate the individual or individuals who will be responsible for this function.
Risk analysis is the first and perhaps the most important step in the risk management process. The purpose is to identify any exposures to loss or identify areas that, if something does go wrong, could cost the company money. Risk control involves any strategies or techniques that can be implemented to lower the frequency or severity of any loss exposure. Risk control includes safety, claims management and human resources.
As a broker, in addition to providing construction management liability insurance, you should ensure that management sits down with their safety officer and does an analysis of the company’s safety culture to determine where they need to improve. Suggest that they work to develop a schedule of risk control services, which will help to accomplish all objectives.