You’re construction company is firing on all cylinders and you are on track for another record year. Projects are on track, your team is locked in, and revenue is steady. Then an employee falls off a ladder, resulting in a serious injury. You file a workers’ comp claim and scramble to keep the project on track while covering for your injured employee. They finally recover and get back to work. You think your nightmare is over until your renewal comes and you almost face another work comp claim—a heart attack from how high your new premium is!
It’s not just the premium. It’s the ripple effect—the Total Cost of Risk (TCOR)—that hits your bottom line.
What Is Total Cost of Risk?
Simply put, TCOR is the sum of all the costs your business incurs to manage risks. It’s not just your insurance premiums; it’s the bigger picture. Think of TCOR as an iceberg—your premiums are the part you see above the waterline, but hidden below are indirect costs like:
- Retained Losses: Deductibles, self-insured losses, and expenses not covered.
- Loss Control Costs: Employee training, safety manuals, and risk prevention technology.
- Administrative Costs: Time spent filing claims, risk assessments, compliance, and employee training.
- Indirect Costs: Reduced productivity, reputational damage, and even strained relationships with clients.
For industries like construction, manufacturing, and restaurants, these hidden costs can stack up quickly.
In the Real-World
Here’s how it worked with a manufacturing company. The safety mechanisms were bypassed on a machine which led to a severe injury, halting production. Here’s how the costs added up:
- Retained Losses: Equipment repairs totaled $25,000.
- Indirect Costs: Missed deadlines, lost revenue, and overtime for other employees to catch up added another $15,000.
- Reputation Costs: A key client wasn’t happy about the delay, threatening future contracts.
- Insurance Premiums: Loss of credits and doubling of Experience Modification Factor more than doubles their premium and will impact their premium for the next 5 years.
By the time the dust settled, the true cost of that single incident exceeded $150,000. And here’s the kicker: with a solid risk management strategy in place, most of it could’ve been avoided.
How to Take Control of Your TCOR
Managing your TCOR isn’t just about cutting costs—it’s about building a more resilient business. Here are three ways to get started:
1. Identify and Assess Risks
Look beyond the obvious. Where are the vulnerabilities in your operations? Conduct regular safety audits, analyze loss runs, and dig into patterns. The more you understand your risks, the better you can manage them.
2. Invest in Loss Control
Prevention pays off. Implement behavior-based safety training, maintain your equipment, and create a return-to-work program for injured employees. These proactive steps reduce claims frequency and severity, directly lowering your TCOR.
3. Partner With Experts
You don’t have to figure this out alone. Partnering with a company that can be your Fractional CRO (Chief Risk Officer) allows you to focus on what you do best while protecting your bottom line.
Next Steps: Tackling TCOR
You have three options.
1. Do Nothing
For whatever reason, now may not be the time to take action.
2. Do It Yourself
DIYing your insurance and risk management program saves on resources, but it can be daunting. If you would like templates and checklists for your industry, we’re happy to share them.
3. Partner with a Fractional CRO
Find a Certified Risk Manager that can implement proven processes in your company to take you from where you are to where you want to go.
Whatever action you choose, don’t be tricked that insurance costs are an uncontrollable roller coaster. Know that there are steps you can take to prevent claims. By doing so, you can ensure that your company prospers for years to come.