FCCS News & Insights

Risk Management Strategies for a Changing World

Creativity may not be the first word that comes to mind when considering risk management and insurance, but in a continually changing business and social environment, both imagination and innovation are needed to identify potential risks and develop effective mitigation strategies. 

“Recognizing potential risks based on new technology or other business or social developments is a key responsibility for risk management professionals,” says Don Sicard, FCC Services Vice President, Risk Management and Insurance. “We’re continually having to redefine what exposures might be out there as a result of the evolving risks we’re facing.”

There’s no question that new risks are arising to challenge Farm Credit and agricultural cooperatives, though one of the challenges is recognizing them as risks in the first place. 

As an example, the use of drones by Farm Credit organizations and others in agriculture is increasing. They offer an efficient way to survey livestock used for collateral and to assess the health and status of both livestock and crops. Yet their use carries risks: an inexperienced operator could fly the drone into an animal or structure causing damage; drones sharing airspace with a crop duster can cause the plane to crash, causing property damage and possible injury or death; the data gathered by the drone could be intercepted, exposing confidential and propriety information. 

The advent of the Uber passenger car service is a societal development that also carries risk for any organization with fleet vehicles or employees who travel: employees could utilize company cars to provide their own Uber services, which could be outside the scope of the current auto liability coverage; and employees on work travel could become injured in an Uber vehicle they hire, potentially opening up the employing organization to workers’ compensation claims. 

Recent changes to IRS deductions have made leasing equipment rather than purchasing it more attractive. What seems like an opportunity to reduce the tax burden also carries a risk if the leased item is not sufficiently or properly insured given the parameters of the ownership structure.

“Once a risk has been identified, we need to analyze the potential financial impact and outline potential steps to lessen the exposure,” says Don. “These can include both procedural steps to reduce the risk exposure and insurance solutions to cover the financial exposure.”

The increasing number of organizations offering onsite exercise facilities for employees offers one example of mitigating risk outside of an insurance solution: employee liability waivers, strong maintenance contracts with equipment suppliers, and contracts with hired instructors can offer a level of protection against financial exposure to injury during use of the facility. 

Electronic security is an obvious source of risk, with both mitigation and insurance solutions. Leading-edge security systems, both physical within the company buildings and electronic to protect against cyber-attacks, supplemented with employee policies and procedures to bolster protection can help reduce the risks. If these prove insufficient and an organization does suffer a cyber-attack, for its Farm Credit customers, FCC Services has substantially increased coverage limits for cyber security breaches and expanded coverage for post-event crisis management activity costs, from $10 million to $50 million per occurrence, and $20 million to $100 million in the aggregate. One risk mitigation solution to cyber security isn’t about insurance at all – a demonstrable, comprehensive business continuity plan.

“We’ve been taking a proactive approach with our underwriters and demonstrating that System organizations recognize that the cyber security exposure is real, that they’re doing all they can to avoid a breach, and that they’re prepared to continue operation should such a breach occur,” says Don.

The challenge for today’s risk management professionals is the speed with which new risks are appearing, the need to educate clients about the risks, and the lag before insurance products or other mitigation solutions can be implemented.

“It used to be that risks were fairly obvious, but now we need to pay close attention to what’s going on in the world and have the mindset that every new development carries a potential risk for our clients,” says Don. “We also need to evaluate all these new exposures against the available solutions, and think more broadly about how to protect against the risks we can’t avoid.”

Larry Lawson, Executive Vice President of Risk Management and Insurance Services with FCC Services agrees, saying, “The bottom line is that we don’t know what we don’t know, and while you can plan for every risk you can think of, there’s always a chance that the one thing you didn’t consider is the situation you eventually face.” 

The solution, he says, is communication between risk management professionals and the clients they serve to create a deeper understanding of what the client is potentially facing so the best risk management solutions can be offered. 

FCC Services’ connection and communication with its clients, combined with our expertise and insight, has led to the creation of a host of best-practice documents addressing industry risks, including emerging risks such as telecommuting, workplace violence, non-owned aircraft, and kidnap and ransom procedures.