WHEN NEW OWNERS BOUGHT Heartland Moving and Storage Co. last August, one of their first actions was to ask their insurance agent to put together a risk management program. "At that time, there were no safety measures to prevent accidents," says Bob Jackson, the general manager. Because of a past history of accidents, a modifier was attached to the Bellevue, NE, firm's workers' compensation insurance policy that raised the costs of that insurance.
The company's agent, Insurance Agents Inc. of Council Bluffs, IA, designed a risk management program to educate drivers and warehouse personnel on the dangers inherent to the moving and storage business. The company also set up safety policies and guidelines and inspected vehicles and the warehouse to make sure they met federal regulations.
"Since then, knock on wood, we've had no accidents at all," says Jackson. "That means that we don't have to pay higher premiums for our workers' compensation coverage. No losses mean more profits. It's as simple as that."
Twenty years ago, Heartland's only concern might have been whether its trucks were fueled up. Risk management programs were something only Fortune 500 corporations cared about. But not today. More and more small- and medium-sized firms are finding that risk management programs are essential if they are to survive and prosper in a more competitive economy.
And the liabilities for both large and small companies have grown, with risks today having an even greater impact on the bottom line.
According to the US Small Business Administration, 71 percent of companies in the United States are small or midsize, and industries dominated by small businesses will account for most of the nation's economic growth over the next few years.
Small and midsize firms are an integral part of the US economy, yet many executives at these firms believe that the business environment for these companies will only become riskier and more complex in the future.
A recent survey by the College for Financial Planning in Denver has revealed that one in three new clients for financial planners is a small business owner.
Interestingly enough, 64 percent of financial planners counsel their clients to adopt risk management strategies, a statistic that ranks just slightly behind recommendations to adopt profit-sharing plans, buy-sell agreements, cash management strategies, and simplified employee pension plans.
Tangled Web of Risks
The web of risks that can snare a small or midsize company has multiplied tenfold in recent years. According to Thomas Wander of Tillinghast, a Towers Perrin company, today many small and midsize companies have pollution risks as complicated as those of large companies, and the number of small businesses purchasing pollution coverage has increased in recent years. In addition, smaller companies share many of the same workers' compensation problems as those plaguing large firms.
Furthermore, smaller firms are penetrating the global marketplace. "In today's world, there are many midsize companies operating on a worldwide basis," says Richard Chappell, who heads Alexander & Alexander's Corporate Specialty Office on the West Coast. These firms can be facing entirely new regulatory environments in those foreign countries. They have exposures with employees working abroad, including political and medical risks.
There are also technology exposures, such as computer risks, since most small and midsize firms are just as computer dependent as large companies. "You can have all the fire insurance in the world," says Phillip Barry of Compro Insurance Services in San Jose, CA, which provides global risk management services for hi-tech companies in Silicon Valley. "You can have all the liability insurance you need, but if you don't have insurance for that piece of software that can shut down your production line, you could be out of business."
Small and midsize companies have also been buried under an avalanche of federal and state regulations that can make doing business a costly nightmare. …