Your Total Cost of Risk (TCOR) is one of the biggest operating expenses for your business, and it should be managed with strategic importance.
Learn how to lower your TCOR and control your own destiny.
Total Cost of Risk (TCOR)
Your insurance rates are calculated using fancy math to determine predictable losses. For example, teenagers typically pay more for auto insurance because they cause more accidents. The risk of insuring a teenager is higher, so premiums are higher.
Your business is similar. If you don’t have a safety program or accident prevention policies in place, your business is more likely to have claims. The risk of insuring your company is higher, so premiums are higher. Makes sense, right?
TCOR goes much deeper than insurance costs. Premiums are just the tip of the iceberg.
Elements of Total Cost of Risk (TCOR)
Insurance companies employ really smart people who help calculate rates, and there are many numbers of the equation that are simply outside of your control. The one number you can control, is your TCOR. The first thing you need to do is identify what these costs are, and then focus on reducing them:
Fines and Penalties: If you have a safety problem, you’ll be paying for it in more ways than one. FMCSA, OSHA, DOT, DOL…the alphabet agencies will come knocking.
Productivity Loss: Accidents typically mean employees missing work. Not only does this affect your bottom line directly, but you could be facing an increase in your workers comp and health insurance premiums.
Other Fees: Since things rarely go as planned, you may have lawyer fees, cleanup and repair costs, or deductibles to pay.
Reputation Loss: If word gets out, and these days it almost always does, your safety problem could reach the ears of your customers and suppliers. If your business gets a bad rep, you could lose revenue.
Safety Program: Safety isn’t free. Even with a program in place, there are administrative and training costs as well as supplies.
Why Should I Care?
As you can see, insurance premiums are only one piece of the TCOR puzzle. What most business owners don’t realize is that these costs are controllable.
Have you ever seen the submission your agent makes to the insurance company on your behalf? Probably not. This is called a narrative – it’s the story your agent tells the underwriter about your business.
Do you have an employee handbook? How about a back to work program or disaster recovery plan? All of these things help you tell a better story that results in a happier ending: controlled costs and lower insurance rates.