Purchasing a Metacognitive Risk Policy—a Forward Step to Self-Insurance

Does insurance matter anymore? If so, what should be insured and how much does a business need?  As an economic adviser and business strategist, I continually hear business owners and executives say, “We are insurance broke.”  With humor, I remind them insurance “brokers” are not purposely trying to cause that to happen, yet this has become a very serious business and financial issue. The business downturn, economic fear, apathetic attitudes toward values and principles, breakdown in process flow, data mining, and the evolution of technology have caused a catastrophic surge in risk exposure both in business as well as personally. Insurance companies are feeling the pressure of more regulatory burden, making a profit in a low-interest rate environment, and covering their own book of business. When coupling a business with an insurance company in these tough economic times, the bigger questions are how much, and what type of insurance coverage should a business purchase to best affect the bottom line?

Before going any further, let me state a very basic yet essential principal.  People go into business or start a business to make a profit.  Period.  Business profit, defined, is to earn or acquire the maximum possible yield on capital investment. It is consistent with their values and objectives, taking into consideration investment constraints, (a.k.a. their risks), in which they operate. I emphasize this principle from observing countless companies and organizations getting caught in the trap of being market-share-focused rather than profit-focused.

A good share of my colleagues, work in the financial community.  Over the past few weeks, I have been visiting with several of them about insurance, profitability, and risk exposures they are facing in our current economy.

A Risk Manager noted – “Educating an insurance loss control specialist in the positives of industry and how it benefits the community is sometimes a challenge.  Insurance underwriters and their loss specialists would better serve the client by seeking understanding of the  business being insured, its business processes, and the management team to make it happen, instead of finding ways to not insure them, and/or charge more premiums.

Kirk Osborne, Certified Financial Planner (CFP) and Private Wealth Advisor for over 35 years with Ameriprise Financial, commented:

The bottom line is that the primary reason for insurance is to protect the things we can’t afford to lose. Every person or business has to decide, for themselves, what they insure, as well as how much based on what they are willing to risk. This decision is determined by their specific goals and objectives.  There are risks that are very critical that need to be addressed, but even more importantly, there are MUSTs. The very best situation is to be self-insured in most areas of risk, or at least consciously working toward that goal.”

From a risk perspective, I find it interesting that although the two people quoted above come from different backgrounds and career paths, they view risk in much the same way.  It is to eliminate, reduce, or transfer responsibility.  Insurance policies can be purchased to cover a financial loss when a damaging event occurs. But herein lies a major problem.  One can’t purchase a policy to prevent losses. Many losses that are common in business operations are due to mental mistakes. It is my opinion that the foremost risk facing our business world today is the atrophy of the American brain.

It has been stated that the United States is the strongest nation in the world for only one reason.  It isn’t because we have more people or because we have better technology.  It is because we are the most proficient in cognitive strategies, or more simply defined, we out-think them.  Let me briefly expand on the importance of metacognitive skills or, in nonprofessional terms: Critical Thinking.

Many of my clients tell me “our people are our greatest investment” or “our people are our biggest asset”.  Having made that statement, I would think, people could then also be their greatest business loss.  Clients also lament, “We can’t find people who have good judgment or are problem solvers.”  This mantra is repeated consistently.  It is real. Business owners are rapidly becoming reactionary thinkers rather than proactive thinkers. It’s not just one-sided, though.  I am also concerned about the critical thinking of management. This is a crucial risk that executives and business owners are facing and they must take immediate corrective action. This lack of reasoning and reflection may be the greatest current risk to profit margin or even business failure. Incompetency can lead to monumental business losses, such as capital lost due to inefficiency or even lawsuits.

In our business world today it has become an accepted standard of practice that no one is to talk about issues in a negative or adverse way, nor should they point out what is wrong and needs changing.  As an advisor and consultant, I am expected to make people feel like they aren’t failing or that they have made good decisions when they haven’t.   Business managers want to shift responsibility or blame to others. A critic is an asset, though perhaps an unpleasant one at times.  The true role of a consultant or insurance broker/agent is to provide “what-if” scenarios for risk assessment. This is not meant to be a personal assault, but to give objective advice on ways that an organization can make more profit as well as succeed in accomplishing their objectives.  The manager must consider criticism objectively and ask whether it is justified.  Though it might hinder the number of clients retained, I cannot tell a business owner what they want to hear and watch their business struggle or even fail. I wish other consultants would do the same.

Sadly, in my observations of business protocol, it seems that good employees are the ones at most risk.  Maybe business owners and managers should consider their own training and leadership abilities more than placing the majority of the burden on “our incompetent employees”.  Business profit and profitability is lost due to incompetence, shifting of blame, and lack of mental effort.

Let me illustrate with this personal example.  A middle manager asked if I could help him engage with the people under him, help in getting rid of employees that did not adapt to the mission of the team, and build business process thinking into the daily activities of doing their jobs.  I met with the manager and his core team members and got their viewpoints on the manager, what the business and insurance risks were to the business and their role in making a profit.  The answers were all over the board.  It was clear the middle manager had been conveying the importance of making money, yet his team members and he only made year-end projection targets.  There was a lack of why and how the business made a profit.  I focused my time on developing his mental process with skills to apply with his team.

With responsibility metrics being defined and implemented, several members of the staff left due to the perceived threat of management. Those who stayed, appreciated the systems, processes, team building, and competencies being developed because they knew what their expectations were, how they were being measured, and how their actions affected profitability.  In a matter of months, people were speaking the same language and were holding each other accountable for their work product inputs into the system.  The team dynamics became stronger, people were excited about coming to work and looked forward to one-on-one meetings to share progress reports both personally and for the business unit.  Even the blue-collar employees wanted to have skin in the game due to the positive change in the manager.  People wanted in on the action and wanted to belong to a winning team.  It wasn’t very long before the home office promoted the manager to an executive level position, as they were aware and impressed with the results he had achieved through his carefully crafted plans.

Profitability demands a high level of logistical and organizational competency. Leaders must learn how to think.   They must learn how to solve problems and know how to overcome obstacles – even before they happen.  This can be achieved through leaders relearning how to think and consistently training their brains to work at a higher level. The only way a leader can become successful in this effort is to have a personal Mind Coach, or Sensei. This is a real and serious matter.  Anything that discourages thinking cannot be positive. A business manager or owner, working with an objective, Personal Coach who is trained and skilled in critical thinking, is proactively taking the right step to becoming self-insured against loss due to mental mistakes.

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Phil Wilder has spent many years of study on the subjects of behavioral psychology and cognitive                reasoning; He has earned a certification in the field of behavioral health, and wellness in regard to the business work place. With over 30 years of experience in financial advising, strategic business planning, and leadership training, he uses the latest studies of neurosciences, and behavioral studies in his approach to economic, business, and management related issues.

Phil is seriously committed to advising, educating, and urging individuals as well as business organizations on how to attain maximum profits and deliver excellence of quality for these unpredictable times.