Cost of Risk for Technology

Tracking the TCOR, total cost of risk, will give every business owner a better picture of what they are actually paying for the risk management programs. A technology insurance company that provides for your insurance needs is a specific cost, but it is only part of the total overall cost. Let’s take a brief look below at how to track.

Compensation insurance

Insurance premiums. It is normally fairly easy to add up the cost that you are paying in insurance premiums for technology errors or omissions insurance, umbrella insurance, casualty insurance, professional liability, surety insurance, workers’ compensation insurance, and health care insurance. The premiums for all of these coverages are usually very plain and clear on your insurance policies. This type of coverage cost will form the basis for the tracking of the total cost of risk.

Management person

Risk management and HR departments Many times when businesses reach a level of number of employees, they tend to have an HR person and/or a risk management person on staff. The cost of this department in salaries and overhead, and all the indirect costs, must be factored into your tracking for the total cost of risk.

Self-insured losses These are hidden costs that can directly affect your TCOR. Some examples of these might be the deductibles that you have on all of your policies that will come into play once you present a claim, as the deductibles will be paid directly out of your cash flow. Making a management decision to retain potential losses versus insuring for them can be another hidden cost that affects your cash flow. If you choose not to ensure building, equipment, or not to have full coverage on your automobiles, these decisions, if claims or losses arise rise will be retained by you as the owner, and you will be responsible for payment of these losses out of your cash flow.

Management services

Outsourcing services. Small to mid-size companies sometimes outsource their risk management services, their HR services, and possibly their claims tracking and payments. An analysis and assessment needs to be made by you, as the business owner, as to whether the cost of these outsourcing services is helping to produce the internal profits that you desire.

Insurance premiums

These four components comprise the key elements of your total cost of risk on an annual basis. Many business owners understand the cost of their insurance premiums but failed to add in the cost of; any risk management and HR departments and people associated with those services; or any plan designs that have built-in self-insured elements that will negatively affect your cash flow; and finally any outsourcing services that are done within the risk management area must also be added into the total cost risk. Being proactive and dating deep into these direct and indirect costs will help you in budgeting and planning for the upcoming year. Failing to take into account the total cost of risk normally will cause shortfalls in your financial statement because of this oversight.