What is Total Cost of Risk?
Is total cost of risk even a thing, or is it just a cliche buzzword that insurance salespeople are out there using, trying to make themselves look different in the marketplace? Well, here’s what I’m going to tell you today, if you’re an insurance salesperson, I’m getting ready to rock your world and show you why guys like me take business from you every single day. Stay tuned for the next couple of weeks because the content we’re dropping is all total cost of risk-oriented, and it will change the way you play the game.
Total cost of risk is not a cliche. It’s not some buzzword that people randomly throw out there. It’s a weapon that the best producers in the country use at the point of sale to take business from insurance salespeople. The fact of the matter is if you want to up your game and you want to go to the next level, you have to understand more than policy language and premium. You need to speak to an executive leadership team about inefficiencies in their operation, specifically the risk management function.
The Need to Understand
Over the next several weeks, I will release a bunch of content, and we are going to dive deep into total cost of risk. Why? Because you need to know it, and you need to understand it. More importantly, when a competitor comes in and takes a piece of business from you and your loyal client leaves and pays 5,000 or 10,000 more in premium to have somebody else represent them, you’re going to have the answer as to why.
So, what’s total cost of risk, what is it? Well, it’s the quantifiable expenses associated with the risk management function of any organization. What are the measurable costs? We’re not going to drill down too far. I’m going to give them to you in a subsequent post, but things like insurance premiums and retained losses are, undoubtedly, some things that come to mind. Indirect costs and claims, things of that nature are also contemplated. Essentially, the total cost of risk is a dollar sign that you can put in front of an amount of money that any organization is spending for their risk management unit.
Some organizations may have a risk manager, guess what? Their salary, that’s part of total cost of risk. They may bring in outside consultants, the money they pay, part of total cost of risk. You need to understand what this is and ask the right questions to get the dollars associated with the various components so that you can quantify that and deliver that in a message to your clients and prospects. So, that they fully understand their costs associated with the risk management function of their business.
If you’re an insurance salesperson, it’s only going to be about premium to you. You’re going to sell on price, and you’re going to die on price. But if you genuinely want to sell on value, if you genuinely want to make a difference in the middle market, and if you’re going to speak music to a CFO’s ears, have those conversations around total cost of risk. And you have my word that I’m going to do everything I can to equip you with the knowledge you need to go out there and do it. If you listen to the upcoming series on total cost of risk, you’re going to kill it in commercial insurance.