Risk exists everywhere in all business environments. One big mistake many companies make is assuming that the cost of risk only involves insurance premiums paid, retained losses & administrative costs. However, the TOTAL cost of risk includes far more than that.
One way to discover all of the risks facing your business—including risks that are unseen & unaddressed in your risk management program—is to examine the total cost of risk or TCOR.
TCOR is the total cost of the items that businesses are responsible for, including:
- Insurance Premiums
- Retained Losses (deductibles and uninsured losses)
- Indirect Costs
- Transaction costs
- Loss of reputation
- Loss of market share
- Additional training
- Product loss
- Production decrease
- Claims reporting and investigation
Calculating TCOR can provide a form of measurement for assessing how its risk-related costs are changing, relative to the overall growth rate of the business.
Why is Knowledge of TCOR Important?
By only focusing on insurance premiums to quantify risk, you miss many costs that you have more control over. The benefit of decreasing premiums is negated if your business sees an increase in indirect costs of claims and administrative costs. True cost reduction is most impacted by lowering indirect costs, which can often cost more than actual claims. TCOR helps identify those costs.
How Does TCOR Work?
TCOR is measured per $1,000 of revenue. By measuring TCOR against revenue, we can measure the progress that risk management and safety program makes in reducing internal costs throughout the years.
Benefits of Knowing Your TCOR
Businesses that accurately measure TCOR invest in more effective risk management efforts, which can provide a significant rate of return. TCOR helps businesses realize the following benefits:
- Increased profitability, productivity and efficiency
- Reduced costs across the entire business, rather than only reduced insurance premiums
- Identification of inconsistencies in the organization’s risk management approach
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