Total Cost of Risk – What is it? | Shoptalk Series, Episode #18

In this episode of The Power Producers Podcast, David Carothers and co-host Kyle Houck talk about understanding the total cost of risk and some of its components and why you need to stop thinking of yourself as an insurance salesperson and start thinking of yourself as a risk manager. 

Episode Highlights:

• What is the total cost of risk? (1:38)
• David shares that a lot of people have been talking about the total cost of risk, but there’s a huge understanding of what it is. (2:51)
• David mentions that insurance premiums are a part of the total cost of risk. (3:39)
• David shares that you need to stop thinking about yourself as an insurance salesman or an insurance producer. Rather, start thinking of yourself as a risk manager. (4:45)
• Kyle thinks that people get lost in the total cost of risk because it’s broad, and it’s difficult for people to figure out its components. (5:33)
• David mentions that there are five parts to the total cost of risk. (6:34)
• David shares that insurance premiums are easy to measure hard cost and they’re part of the total cost of risk. (13:52)
• David thinks that it’s significant to know that insurance premiums are also the result of how good you can manage the other percent. (13:58)
• David mentions that retained losses are information that you have made a conscious decision to retain actively, and actively retained losses are a deductible. (14:11)
• David shares that if you don’t involve the carrier, you’re not getting a deductible credit on your premium because the insurance company doesn’t know, and you don’t get the ability to work with their adjusters because, in a deductible situation, the carrier is going to handle all of the adjustment. (16:43)
• David thinks that looking at both active and passive losses is vital. (18:43)
• David mentions that he has an article that’s coming out in a couple of weeks on, why you want to allocate the cost of risk and the steps associated with allocating the cost of risk. (19:47)
• David shares a story about his early years in the insurance industry. (24:06)

Tweetable Quotes:

• “Everybody thinks they know what it is. They run around the chatterbox and say, hey man, let me talk to you about the total cost of risk, and at the end of the day, they hand them an insurance proposal.” – David Carothers
• “There’s got to be measurable things like quantifiable data points that you can use. Otherwise, you just start kind of rambling about the total cost of risk and you’re not giving them any specific points or things that are impacting their premium.” – Kyle Houck
• “Taking the extra time and the extra steps to not only understand something but be able to articulate that and educate or client or prospect on exactly what it means.” – David Carothers
• “I’m not here to teach you how to calculate the total cost of risk to the nth degree of accuracy. I’m here to teach you how you can use it in its most basic premise to drive a wedge and differentiate yourself from the point of sale so you can get a deal closed.” – David Carothers

Resources Mentioned:

• David Carothers LinkedIn
• Kyle Houck LinkedIn
• Florida Risk Partners
• The Extra 2 Minutes