In 1983, Coppus Engineering Corp., a $30-million manufacturer of industrial turbines, blowers, and burners, paid $55,000 for a comprehensive general liability policy (CGL), which provides coverage if the company's operations cause injury to anyone. The next year, Coppus's CGL premiums skyrocketed to $105,000. In response, Coppus hired John Brennan.
Brennan's job was to be "risk manager," a newly created position at the Worcester, Mass., company. Most large companies have a full-time risk manager on staff; most small ones don't. But the current insurance climate is prompting many small companies, especially industrial manufacturers like Coppus, to take the unusual and rather expensive step of putting one on the payroll.
"By creating my job," says Brennan, "our firm is acknowledging the fact that insurance is now a big part of doing business." Since Brennan, 31, was brought on board in 1984, accidents have declined by about 50%. Despite this impressive record, however, Coppus's premiums for CGL coverage rose to $227,500 in 1985. "The way the market is today, a good safety record earns you the privilege of getting your premiums jacked up," says Brennan. "If we didn't have a good safety record, we wouldn't be able to get any coverage at all. I'm afraid to guess what our premiums will be like in 1986. They will probably double."
As risk manager, Brennan's responsibilities are to keep a tight rein on safety and to handle all insurance buying. Before he was hired, those duties were scattered among various people in financial administration. Risk management became so important, however, that president Donald Hare decided to consolidate them under one position. "We already had substantial risk-management measures in place," says Hare, "but they were being delegated too much, and administered in too diffuse a way. John brings professional expertise to them. Every year, a guy like him should be able to save enough money to pay for his salary."
Brennan works on administering the company's existing safety programs and procedures, and has introduced new ones as well. "Before, various supervisors were in charge of safety in their individual areas," he explains. "It was too decentralized. I still go down to the shop floor, to walk around and solicit advice from supervisors, but I've tied things together so nothing falls between the cracks."
Now, for example, Brennan performs yearly risk-management audits for the entire company, and issues recommendations. Before, supervisors were supposed to audit their own departments. Most performed them infrequently; some never bothered with them at all. Brennan also intends to hire risk-management consultants for periodic checkups in problem areas that need specialized review. Coppus used to hire risk consultants every five years or so. "It was like getting an overdue health checkup," says Brennan.
A risk consultant typically charges $3,000 to $5,000 to perform a risk audit of a small, one-location business. Richard Betterley, president of D.A. Betterley Risk Consultants Inc., in Worcester, says, "Many of our clients used to be Fortune 500 companies. Now, companies doing around $5 million are starting to come to us, too." According to Rita Epstein, spokeswoman for the New York City -- based Risk & Insurance Management Society, the use of risk-management consultants has increased roughly 35% this year. "The way insurance is today, risk consulting is getting to be a bigger and bigger business," she says.
Risk audits can be invaluable, especially for such companies as Coppus. "This year, our underwriter completely eliminated our coverage for pollution liability," says Brennan. "I wasn't surprised. That kind of coverage is becoming all but extinct. But there are measures a firm can take to compensate. For instance, during a recent risk audit, I discovered that some of our electrical transformers were filled with oil that had PCBs in it. I immediately recommended that the oil be removed. If there had been a fire or something, scores of people would have gotten exposed to those PCBs. It would have been an unbelievable disaster."
Brennan, who negotiates with Coppus's underwriters, says the company has stayed for years with the same carriers. "That loyalty was wise, and it has paid off," he says. "A small firm should try to stick with the incumbents. Shopping around turns underwriters off. If you stay with an underwriter, he can predict what kind of customer you'll be. If you're trying to cut deals with everybody on the street, the underwriter will think you're more interested in getting a deal than being a stable customer."
Brennan, who learned his trade at Liberty Mutual Insurance Co., exhibits a polite corporate manner befitting an erstwhile insurance man. "If a firm decides to hire a risk manager, it should get someone with solid experience in insurance," he advises. "For eight years [before coming here], I had a job as a claims supervisor for Liberty Mutual, mostly in the field of property-casualty liability. In fact, Coppus was one of my accounts. A firm does well to hire someone it knows and trusts."