Importance of Total Cost of Risk | URA Blog

In business, risks are as common as opportunities—and it takes more than just picking the correct insurance policy to be aware of the dangers you face. Yet, in their pursuit of the ideal insurance plan, many business owners focus primarily on the cost of premiums as if that is the be-all, end-all.

The concept of Total Cost of Risk (TCOR) encompasses a far broader picture of risk management and its monetary consequences. In order to make educated insurance decisions and fully understand the financial impact of risks, business owners must grasp the full scope of TCOR.

Understanding Total Cost of Risk (TCOR)

Insurance premiums alone often don't represent the whole picture. For example, when a lower-premium plan has a higher deductible or less coverage, more money will have to be paid out of pocket. This is why business owners can better understand the pros and cons of various insurance policies by examining TCOR.

TCOR represents the entirety of costs a business incurs due to risks. This includes:

• Insurance Premiums: The regular payments for insurance policies.
• Retained Losses: Costs borne by the company, such as deductibles or uninsured losses.
• Administrative Costs: Expenses related to managing risks, encompassing safety training and risk management personnel salaries.
• Indirect Costs: Often overlooked, these can include downtime, reputation damage, lost opportunities, and reduced productivity following an incident.

Embracing Proactive Risk Management

By examining all facets of TCOR, businesses can reduce risk-related costs through a forward-thinking approach. This helps identify high-risk areas and devise strategies to improve safety, update equipment, or better train employees.

In fact, an in-depth understanding of TCOR can serve as a competitive differentiator. Businesses that manage and lower their TCOR effectively can often offer better, more competitive pricing. They can also reinvest savings back into the business or allocate more resources for innovation.

With a comprehensive grasp on TCOR, business owners can:

• Select insurance plans that better fit their company’s risk profile.
• Negotiate more effectively with insurers using detailed data and insights.
• Efficiently allocate resources to areas with the most significant risk-related costs.

Integrating into Financial Planning

Incorporating TCOR into overall financial planning brings clarity to the financial ramifications of risks. By thinking ahead, businesses can prepare more effectively—ensuring they have sufficient funds to cover losses or other risk-related expenses. This is why navigating the complexities of insurance involves much more than just focusing on premium costs.

A thorough understanding of the Total Cost of Risk equips businesses to not only select appropriate insurance plans, but also engage in comprehensive risk management. This holistic approach enables strategic decision-making, contributing to the long-term sustainability, profitability, and resilience of a business in a dynamic and challenging commercial environment.

How can United Risk Advisors help lower your TCOR? Get a quote, and one of our risk reduction experts will talk to you about your specific needs.