A little bit risky

In the past, small to medium-sized enterprises have been accused of a lack of awareness when it comes to risk management. It is now generally accepted, however, that SMEs across the board are aware of the benefits of good risk management. However, there are still a number of obstacles to overcome - and the fact remains that for many there are still limited resources available to invest in risk management strategies, particularly for those at the smaller end of the scale. So, where should the focus now lie for brokers keen to provide risk management advice to their SME customers?

Few dispute the vital role the insurance industry - and brokers in particular - play in providing advice and guidance on risk management issues. According to the Federation of Small Businesses: "Britain's 4.3 million small businesses are acutely aware of the need to put in place good risk management procedures. Increasing pressure from financial institutions for such measures is the litmus test for investigating and adopting such policies. It is the case, however, that other priorities take place and if risk management is ever suggested it will invariably come from the insurance broking industry."

So, while it is generally true that SMEs are aware of the importance of risk management, there remains a genuine requirement for advice and information about best practice and implementation of effective strategies. As Trevor Smith, founder of RiskSTOP, observes: "Risk management is practised in a sense by all SMEs but those that are better informed generally are better at risk avoidance and mitigation."

Day-to-day running

Despite the best intentions and even when armed with the most up-to date information, for many SMEs, the day-to-day running of the business inevitably means that the risk management strategy they plan to implement slides down the list of priorities. Therefore, in addition to providing information, it is vital that brokers help the time-pressed SME to implement risk management measures in a cost effective and efficient way. As Nigel Tibbo, corporate director for the Jelf Group points out, the main barriers to good risk management practice are a lack of time and internal resources.

The provision of online guidance can help, and a growing number of brokers and insurers are choosing to provide basic information over the web rather than via pamphlets and leaflets. This of course has the advantage that the information can be updated whenever necessary. Smith, however, adds a note of caution, particularly when talking about clients at the smaller end of the scale. "Not all SMEs will have access to the web all the time." Certainly, it is true that sole traders, such as gardeners, who are not desk-bound, may not have the access or the inclination to surf the web looking for advice.

Smith also warns that simply directing insureds to other websites may cause confusion. "People often don't know what it is they need to know and sending people to the Health and Safety Executive's website, for example, may simply introduce a whole new set of questions regarding what specific information that business needs."

As far as saving valuable time is concerned, the effective use of IT systems can be vital. Tibbo explains: "Anything that can be embedded into the business process and becomes an integral part of the day to day management regime, is going to secure a greater level of compliance within that business." Tibbo observes that such systems are particularly useful where they start to diarise and create action activity because they are then live and ongoing. "So if a risk assessment needs to be carried out because new equipment is being installed, the system will automatically flag to whoever the controlling person is that this needs to be done."

There are a growing number of resources available to brokers and their clients, many of which are IT-based, which can support the provision of good risk management advice to insureds. These come from a variety of sources, from associations like the British Insurance Brokers Association, which offers its own Risk Management facility, to outside consultants. They range from off the shelf risk management solutions, to online training. Peter Staddon, BIBA's head of technical services, comments: "There is a plethora of this type of product available. However, the broker needs to choose his partners wisely and the formation of an alliance could be extremely beneficial to the broker and to his client base, and would allow them to seek new clients utilising this type of facility."

Online training

Among the more recent developments, the Institute of Risk Management has launched an online training programme specifically aimed at SMEs. The IRM's chief executive Steve Fowler explains: "It is aimed very much at the SME manager who can't get out of the office because they are too busy running their own business. The idea is that they can spare 10 minutes a day to look at some aspects of risk."

Tibbo explains that Jelf has a licence with Business Safety Systems to provide its Target 100 system - a web-based health and safety management system - to clients. "We can help set it up and train staff on how to use the system but importantly they have the ownership of it and they use it," observes Tibbo.

So how far is face to face risk management advice a realistic prospect when dealing with time-pressed SMEs? Staddon points out that this depends on a range of issues, such as the remuneration of the broker, the location of the business from the broker's offices and the complexity of the risk.

Whether the risk management is provided on a face to face basis, or via phone or email, the fact is that increasing numbers of brokers are keen to offer this service to businesses of all sizes. Staddon points to the importance of offering this kind of service, observing: "Working with the client helps to build a relationship - a tripartite relationship where the insurer is an integral party. More importantly you are safeguarding the client's business with the appropriate risk management."

Jelf is one broker that is taking a particularly pro-active stance on risk management, to the extent that it effectively takes on the role of non-executive director to support its clients. Tibbo emphasises that the key issue for the broker should be to act as the facilitator, and to gain the trust of the client. "Once they listen to you and trust you, it is more likely that they will allow you to talk to other parts of the business outside the managing director or the finance director." Tibbo also points to the importance of ensuring the client 'owns' the risk management strategy, adding: "We prefer to encourage the business to tell us what they think their risk issues are, as this instills ownership from their perspective."

Jelf also tries to create incentives to SMEs for implementing risk management strategies. "We try to encourage the insurers concerned to offer risk management bursaries or contribute towards the cost of implementing some of the risk management solutions," explains Tibbo, adding that this approach has seen success, in that some insurers will make money available to clients where they see a clear benefit to them in mitigating the risk. "Of course, it has to be an insurable risk," adds Tibbo.

The fact that increasing numbers of SMEs are requesting advice on risk management issues, is evidence of the increasing levels of awareness among the smaller business community. High profile disasters, from flooding to terrorist activity, have emphasised the need for disaster recovery planning in particular. Tibbo comments: "We are getting a lot of enquiries and requests for support on business continuity planning. The explosion at Buncefield certainly raised that profile, as have issues surrounding terrorism threats. We are finding more and more clients want support on disaster recovery and business continuity planning."

While headline-grabbing events can serve to spread the risk management message, Fowler warns that media coverage can have a negative effect. He explains: "One of the barriers to SME risk management is confusion over the size or extent of the subject. It is not helped by media coverage of some of the more ridiculous health and safety stories and there is a tendency to equate negative approaches to health and safety governance and corporate governance with risk management." Fowler also emphasises the need for clarity when providing risk management guidance, and sticking to plain English rather than technical jargon.

A broad spectrum

The problem when talking generally about SMEs is that the term covers such a broad spectrum and, of course, solutions that may be applicable to business at one end of the scale may not be relevant to those at the other end. Smith concludes, however, that: "SMEs generally understand that good risk management is good for business." The focus for brokers must be on overcoming the pressures of time and money that are a fact of life for many SMEs. As well as providing the relevant information in an efficient manner, brokers also need to be demonstrating how the theory can be turned into practice in a way that does not detract from the day to day running of the business.

Risk management - a Standard

A Risk Management Standard is published by the Institute of Risk Management, The Association of Insurance and Risk Managers and ALARM, the National Forum for Risk Management in the Public Sector. According to the IRM, the Standard has become the de facto document for risk management practitioners and for corporations in the UK for the management of risk and to meet corporate governance requirements.

Below is an extract from the Standard:

Risk management is a central part of any organisation's strategic management. It is the process whereby organisations methodically address the risks attaching to their activities with the goal of achieving sustained benefit within each activity and across the portfolio of all activities. The focus of good risk management is the identification and treatment of these risks. Its objective is to add maximum sustainable value to all the activities of the organisation. It marshals the understanding of the potential upside and downside of all those factors that can affect the organisation. It increases the probability of success, and reduces both the probability of failure and the uncertainty of achieving the organisation's overall objectives.

Risk management should be a continuous and developing process that runs throughout the organisation's strategy and the implementation of that strategy. It should address methodically all the risks surrounding the organisation's activities past, present and in particular, future.

It must be integrated into the culture of the organisation with an effective policy and a programme led by the most senior management. It must translate the strategy into tactical and operational objectives, assigning responsibility throughout the organisation with each manager and employee responsible for the management of risk as part of their job description. It supports accountability, performance measurement and reward, thus promoting operational efficiency at all levels.