We’re in an Economic Downturn. Now What?
At the end of last year, it appears that no matter where we turned our attention, we could not escape news of the economic downturn that was on the horizon. Inflation hasn’t been as high in over 40 years, and central banks' interest rates kept increasing. Economic experts started heavily observing the markets and speculating what this could mean for our economy in 2023. Unfortunately, things were looking bleak as we entered the new year.
With economic downturns and difficult market periods, any risk manager knows that the number of risks and exposures will rise. Of course, it’s always easier to plan for economic downturns before it happens, but regrettably, we’re already in the midst of the downturn. Now what? What can risk managers do to protect their organizations during this unstable economic period? Luckily, most risk managers already have what it takes to help their companies weather economic downturns in their risk management toolbox.
Here are some focus areas risk managers need to look at during economic downturns and difficult market periods.
1. Loss Control
Loss control measures are essential in sound risk management, especially when balance sheets are under pressure. There are many different techniques and strategies when it comes to property loss control, from damage of physical assets to casualty loss control. Casualty loss control will mitigate liability arising from workplace injuries, illnesses, and third-party losses. Both forms of loss controls are beneficial and will help organizations from losing unnecessary money during economic downturns.
2. Business Continuity
Resilience does not happen by chance. Risk managers of all industries should create and maintain business continuity plans so their organizations can recover from events that disrupt operations. Adopting resilience strategies and incident management systems is necessary. Strategies enable organizations to adapt and respond to a variety of events, from severe weather to pandemics and other disasters of human origins, such as fires, explosions, and spills. If we’ve learned anything from the past few years, it’s that companies need to prioritize and commit funding to business continuity planning.
3. Risk Transfer
Economic inflation pushes up the price of goods and services, including materials and labor needed to repair or replace damaged property. Because of this, risk managers should consult with their risk advisers and property insurers about the adequacy of replacement cost coverage. Not increasing coverage limits to accurately reflect current valuations could leave organizations with coverage gaps, which are even more costly in a downturn. Organizations that previously self-insured some exposures should consider the benefits of transferring some of those through insurance.
4. Total Cost of Risks (TCOR)
TCOR is a valuable metric for all risk professionals, as it comprises insurance premiums paid, retained losses, loss mitigation costs, and administrative expenses of risk management. Reducing TCOR should be a perennial objective, and risk professionals who can do it in an economic downturn will strengthen their organizations’ financial position.
If you’re curious to learn more about the focus areas and what more risk managers can do during an economic downturn, download our free eBook, “Preparing For Economic Downturns: How Risk Managers Can Help Their Organizations Minimize Risks.” The eBook will provide you with actionable steps and helpful tips to help you navigate the current economic climate.
The eBook covers:
Lessons from past downturns from a risk management perspective
Focus areas that are within a risk professional’s control
Actionable steps risk managers can take to mitigate risks and reduce losses, regardless of economic conditions
This resource will help ensure that you're doing all you can to protect your organization in 2023 and beyond.