What you need to know about insurance in the timber industry.
November 6, 2023
How risk Management & Compliance are related to your Insurance Premiums
Insurance plays a pivotal role in a typical timber retailing, wholesaling or manufacturing business.
Whether importing raw material from overseas locations, recommending a specific structural timber for a job, and/or using contractors/sub-contractors to deliver specialised aspects of a job a high standard of documentation and risk management working together with a well-structured set of insurance policies play an important role in fulfilling your contractual requirements whilst also providing you with financial certainty in the event of something unforeseen occurring.
The Role of Compliance Activities
Australian businesses operate in an exceptionally complex regulatory regime with multiple levels of government, a rapidly changing regulatory regime, and some of the strictest product and workplace health and safety and privacy legislation in the world.
The Timber Industry takes it to a whole other level with your requirement to comply with a specialist range of legislation including, The Building and Construction Legislation (Non-conforming Building Products—Chain of Responsibility and Other Matters) Amendment Act 2017 (NCBP Act).
Fortunately, Timber Queensland provides many tools to its members to assist with documenting compliance with the legislation which affects its members.
While it might seem unrelated, compliance plays a vital role in risk management and subsequently impacts insurance premiums. When individuals or businesses fail to comply with legal and industry standards, they expose themselves to elevated risks, leading to potential financial losses.
Insurance providers take compliance seriously because it reflects the insured’s commitment to risk reduction. By being able to demonstrate adherence to safety regulations, data protection laws, ethical guidelines, and more, individuals and businesses demonstrate responsibility and accountability. This can positively influence insurers’ perceptions, leading to reduced premium costs. Insurance providers view compliant entities as less risky clients, as they exhibit a proactive attitude toward minimising potential claims.
Effective Risk Management:
While insurance provides a safety net, the goal should be to minimise the likelihood and impact of risks altogether. This is where risk management comes into play.
Effective risk management involves identifying, assessing, and mitigating potential risks before they can escalate into significant issues. By implementing risk management strategies tailored to specific industries and contexts, individuals and businesses can create a proactive approach to safeguarding their interests.
Risk management strategies involve several key steps:
Risk Identification: Recognizing potential risks that could impact an individual’s health, property, or business operations.
Risk Assessment: Evaluating the probability and potential severity of each identified risk to prioritize them effectively.
Risk Mitigation: Developing strategies to reduce the impact or likelihood of risks. This might involve implementing safety protocols, investing in security measures, or diversifying investments.
Risk Monitoring: Continuously assessing the effectiveness of risk mitigation strategies and making adjustments as needed.
The Interplay: Risk Management, Compliance, and Premiums
The relationship between risk management, compliance activities, and insurance premiums is symbiotic. Implementing effective risk management strategies and maintaining compliance can directly impact the cost of insurance coverage. Here’s how:
Reduced Risk Exposure: By identifying and mitigating risks through proper risk management, individuals and businesses lower their overall risk exposure. This makes them more attractive to insurance companies, which may offer reduced premiums to reflect the decreased likelihood of claims.
Demonstrating Responsibility: Compliance activities showcase an entity’s commitment to responsible practices. Insurance providers are more inclined to offer competitive premium rates to clients who demonstrate a dedication to adhering to regulations and industry standards.
Customised Policies: Insurance providers may offer tailored policies that align with a client’s risk management strategies. This personalised approach not only ensures comprehensive coverage but also prevents unnecessary coverage gaps.
Long-Term Savings: While investing in risk management and compliance measures might require an upfront cost, the long-term savings from reduced premiums and fewer claims can far outweigh the initial investment.
Insurance is not just a financial transaction; it’s a strategic partnership that hinges on effective risk management and your ability to demonstrate your compliance activities. By recognising the importance of proactive risk identification, mitigation, and adhering to legal and industry standards, individuals and businesses can not only reduce their exposure to potential losses but also, potentially, enjoy the benefits of lower insurance premiums.
Depending on your needs, your broker can assist with introducing you to tools that can assist with your compliance activities and can partner with you to identify appropriate risk management activities that will help you reduce the likelihood of a claim.
A good broker can help you with ensuring that your insurance company understands the quality of your risk management and compliance regime and uses this information to get you a good insurance result.
Article by Scott Denning
Broking Leader – Rivers Insurance Brokers
Note: this article contains general advice only & you should seek further information from your personal Rivers Insurance Broker about the impact of any information provided here on your personal or business needs. ABN: 28 010 242 681 AFS License: 247093 www.riversinsurance.com.au