HVACR Business

JUN 2015

Help hvacr contractors master the critical components of business management.

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HVACRBUSINESS.Com 20 HVACR Business J U N E 2 0 1 5 I t's not unusual for your fnancial advisor to talk to you about risk management — a plan based on the amount of risk you're willing to take with your money. Should you invest it in the stock market, an IRA or simply put it in a savings account at the bank? Each of these carries a different level of risk, and only you can determine your comfort level with each of them. You de- termine where you fall on the spectrum — from cautious to aggressive investor. Risk management is also part of every aspect of your business. It's the amount of uncertainty regarding loss. For example, a savvy business per- son is aware of what the competition is doing, and responds accordingly. If the HVAC industry is moving to home in- spections and you choose not to imple- ment these, you risk losing business. Or, you may forecast your cash fow will be tight during the frst quarter of the year, so you need to determine the risk to your payroll, creditors, etc. every Decision involves Risk Risk management is also part of our daily lives. We evaluate our risk with ev- ery decision we make. It might be what route we take to work every morning — should I risk possible traffc on the interstate or take the back roads to avoid traffc? It might be how we spend our lunch hour — at our desks, in the employee break room or at a nearby restaurant. We think about the benefts and conse- quences of each choice we make. Even in purchasing auto or homeowner's in- surance, we have a choice of getting a lower premium in return for a higher deductible. There is no right or wrong answer. We evaluate our risk factors and our toler- ance levels to come up with an answer that's right for us. It shouldn't be unusual, then, for your insurance agent to talk to you about risk management. After all, that's what in- surance is — a safety net for risk. When you consider the necessary coverage, you evaluate the possible risks involved in your business and how you would pay for them if they occurred — things such as accidents on the job, damage to homes from service calls or faulty products. The insurance carriers have also re- viewed and evaluated the risks by seek- ing out information on injuries, fatali- ties, accidents and illnesses. The Bureau of Labor Statistics cites 918,700 cases involving days off from work due to non-fatal injuries in 2012, with a median of eight days of work missed by employees due to injury each year. In the HVAC industry in 2012, there were 20 fatal injuries in 637 million hours worked. Insurance carriers will base the likelihood of you having a claim on these statistics. Law of Large numbers According to Investopedia, an online insurance resource, most insurance pre- miums are based on the Law of Large Numbers and Adverse Selection. The Law of Large Numbers means that the larger the group to be insured, the more certain the predictions. Insurers want to cover you based on the statistics that apply to everyone in the industry. Insurance companies will spread out their risk across the board to minimize their exposure to loss. They predict an approximate number of claims within a certain group during a certain time period. Adverse selection is the likelihood that businesses with the greatest prob- ability of loss will buy insurance to cover that loss. A construction business might buy more insurance than an HVAC com- pany, simply because they foresee more incidents of accident or loss in their par- ticular industry. Insurance companies try to measure the risk and adjust the premium prices charged for that risk. If you've had nu- merous claims in the past because of unsafe working conditions or careless employees, you are likely to be charged a higher premium. To avoid these "blanket" premiums, you need to differentiate your business practices from those in the larger group. Instead of focusing on fnding the best insurance policy for when an acci- dent occurs, why not focus on prevent- ing it from happening in the frst place? It's important to identify and prioritize By Matthew Stangle, maNagiNg partNEr of iNsUraNcE forcE in the HVAC industry in 2012, there were 20 fatal injuries in 637 million hours worked. RISk ManageMent Shouldn't Be Risky Business

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