Alliance articles

A bundle of risks

The ever-growing list of regulations means FDs are in the firing line again over risk.

EMPLOYERS DO NOT want to be seen as heartless or uncaring. And providing employees with the safest possible work environment has benefits above and beyond the obvious. You'll have less trouble recruiting staff and retention will be a lot easier. So getting your health and safety policy sorted is crucial.

But while that "carrot" side of the equation will have you feeling warm and fuzzy, it's the "stick" part – the regulatory environment – that will have you awake at night. Just keeping up to date with your exposure to the myriad rules and regs is a job in itself.

"FDs already have 20 different job areas – just one of those is insurance and risk, and within that are 50 or 60 areas to look at," says John McLaren-Stewart of Alliance Insurance Management. "The FD needs to get someone to help them make sense of the whole issue."

The UK Chamber of Commerce estimates that the cost of new regulations to business since 1998 at £30bn. So we're not talking small potatoes. "The problem is that regulations and the associated risks come in sporadically," says McLaren- Stewart. It's impossible to keep up with them "as they happen". So Alliance recommends a close working relationship with your broker to tie up the numerous risks into one bundle. "FDs are used to assessing risks bit-by-bit and using different suppliers to manage them," he says. "So you use a health and safety consultancy, a different disaster planning agency, an environmental audit firm – as well as buying insurance from a different source. The time that takes makes it tough for any FD."

Sitting back and waiting for new regulations to emerge and only then get onto tackling them from business risk point of view is a recipe for disaster. "To use an old analogy, the best form of defence is attack when it comes to compliance," says McLaren-Stewart. "FDs need to get a competent team in place and attack these numerous problems."

He's talking about joined up thinking. Consider the list of impending or recent additions to the compulsory regulations your business will have to deal with this year alone:

• Asbestos Regulations 2002.
• Fire Precaution Regulations.
• Part-time workers.
• Disability Discrimination Act.
• COSHH.
• Building Regulations 2001.
• Dangerous Substances Act 2002.

That's a lot to tackle piece by piece. But while risks and regulations are increasing, there is one positive note. Showing an awareness of risk management and efforts to comply with regs will count in your favour should the worst happen. "It's really about conducting thorough risk assessments," says McLaren-Stewart. "In recent court rulings, the mere fact that a business had carried out risk assessments and put plans of action in place to manage those risks has been seen as a mitigating factor in the eyes of a judge."

It's not just businesses that are feeling the pain of increasing regulations. Insurers' abilities to cope with, and adequately cover against, the growing risks are also being hindered. That's creating confusion in the market: the standards one insurer will apply to health and safety will differ from those of other insurers. (The industry is making efforts to have standards harmonised to save both time and expense.)

Some insurers now outsource risk assessment to ensure that their policyholders are managing risk properly. But the knock-on from increasing health and safety regulations is a change in the whole legal environment. As a result, a third party assessor can become wary of taking on the task. If anything goes wrong, it's open to action from three parties: the original insurer; the company they have surveyed; and any injured party. This obviously increases risk and therefore cost. This is where a multi-disciplined risk services broker can help.

Insurers also want to see a simplification of the regulatory landscape so they can confidently assess their clients' risk portfolios without duplication of work or unwanted liabilities.

As for your role as "chief risk officer" – well, it's clear that you've got more to deal with in the health and safety area than ever. So what should you be doing to get up to speed on current risk management thinking? McLaren-Stewart offers the following tips:

• Assess the risks and pull them together (many will cross over).
• Identify the potential downsides.
• Identify immediate weaknesses.
• Create a programme of sensible and progressive management.

That's still a sizable task. But it's not all bad: "There is one crumb of comfort – at least all your UK competitors have the same burden," says McLaren-Stewart.

Reproduced with kind permission of Real Finance.