The case for firms setting targets for risk management performance

It’s the time of year when goals, objectives and targets are being agreed for the forthcoming year – business goals and objectives, financial and other targets, personal objectives and personal development goals. Arguably, risk management improvement planning should be included in that process. As the saying goes, “failing to plan is planning to fail”.

Claims record

Minimising the financial impact of claims is always a worthwhile objective, never more so than in the current challenging business environment. Self-insured amounts, combined with potential premium loadings (up to a maximum of 275%), are unwelcome unplanned costs at the best of times. In the event of persistent claims, they can represent a sizeable extra cost to the practice.

Conversely, achieving the maximum premium discount and avoiding self-insured amounts is an attractive financial reward for maintaining a claims-free record.

For practices with an adverse record, achieving sustained improvement calls for both planning and a commitment to see the plan through. For the plan to be effective, it must start with analysis of the practice’s record as well as its causes and contributory factors. The claims analysis form sent to practices following settlement of a Master Policy claim (see examples in the “Spot the difference” panel) is designed to generate a preventive action plan which allocates responsibilities, sets timescales and prompts periodic review of effectiveness.

As always, it makes sense to apply the SMART principle, which means that goals and objectives ought to be Specific, Measurable, Action-oriented, Relevant and Timed.

Experience has shown that SMART goals are much more likely to be implemented and produce results than those which are not SMART. Spot the differences in the two claims analyses in respect of the same break notice claim: why is the first form unlikely to lead to any improvement in the firm’s risk management procedures?

Risk management performance

Practices which have maintained a consistently claims-free record won’t want to rest on their laurels. While for them, the absence of claims paradoxically may mean that they lack an obvious priority for risk management efforts, one objective ought to be to maintain their enviable record. How?

Even claims-free practices may benefit from introducing new procedures and processes, for example to respond to any “near misses”; to increase risk awareness; to act on risk alerts; or to tackle risk management targets identified by the Society’s Insurance Committee.

File audit: to check for compliance with the firm’s procedures.

If, for example, the practice has introduced a procedure requiring an agreed format of checklist to be followed when preparing/ serving a break notice, a physical file audit will establish whether the procedure and checklist are actually being adopted in practice.

Self-assessment and benchmarking: encouraging continuous and measurable improvement.

Referring to the “Risk management progression” depicted in table 1, how does the practice’s risk management rate currently? Where should it be? By when?

If the practice is demonstrably and consistently doing everything described at “Stage 2 – Aware”, what would it take to progress to “Stage 3 – Advancing” or “Stage 4 – Advanced”? Achieving some of the additional measures may be relatively easy, but others may require a longer term plan, perhaps staged over a period.

Risk management questionnaires might be adopted as a way of benchmarking current performance and planning and measuring enhancement. Adopting a self-assessment process is a simple way of identifying possible gaps. Addressing identified gaps can then be adopted as risk management objectives. An extract of such a questionnaire from the Marsh website for Scottish solicitors is featured in table 2. Can an unqualified and confident “Yes” be given, for example, in response to the question (regarding critical date procedures):

“Are clients always advised in writing of critical dates and the consequences of failure to take appropriate action prior to expiry?”

If not, arguably a risk management target or objective has been identified: “By {date/timescale} to ensure that all fee earners follow the firm procedures in notifying clients in writing of critical dates, action required and the consequences of failure to act prior to that critical date”.

Risk management training

Training of some sort is almost always going to be a worthwhile feature of a practice’s statement of risk management objectives.

If new procedures are to be effective, for instance, training of colleagues is likely to be required to ensure their consistent and reliable implementation.

Looking back at the second claims analysis/risk improvement action plan completed for the break notice claim, how are colleagues (including colleagues in branch offices, and any new recruits) to be clear about:

  • whether the checklist approach applies to them;
  • where they find a copy of the up-to-date version of the checklist;
  • who they speak to if they are unclear about any of the requirements of the checklist etc, unless all of these points are addressed in a briefing document or, preferably, a briefing session?

Training is potentially costly in terms of time, travel and registration fees. This certainly means that practices will want to plan their training to take advantage of as much cost-free training as appropriate and will also want to appraise the impact and value of training.

Recent feedback provided by a practice following a series of risk management workshops suggested a way of obtaining the most tangible measure of effectiveness and impact. As well as questions addressing the content of the workshop materials and the performance of individual facilitators, delegates were asked to rate their level of knowledge and understanding of the topics covered by the workshops – both before and after – on a scale of 1 to 5. This meant that the feedback process generated total ratings and averages per delegate – before and after – so that the impact and effectiveness of the training could be measured in the most tangible way. Extremely useful for the training providers, and extremely useful too for the practice itself as a tangible measure of improvement in colleagues’ awareness of risks and practical risk controls.

Training materials are available from Marsh, and the availability of risk management training by way of eLearning does mean that there are more opportunities to satisfy training plans in a way that is time efficient and cost effective. Reference is made to the article “Training for success” by Calum MacLean of Marsh (Journal, February, 37).

Whatever your risk management goals are for the year, make sure that they are SMART goals that contribute to a tangible and measurable improvement in performance in 2010.


Alistair Sim and Marsh

Alistair Sim is a former solicitor in private practice who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, the world’s leading risk and insurance services firm. To contact Alistair, email: alistair.j.sim@marsh.com

The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.

Marsh Ltd is authorised and regulated by the Financial Services Authority.

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