What should you look for in a risk management consultant, what do they do, and how do they charge?
WHAT IS A CONSULTANT?
A consultant is an expert who you can hire on a part-time basis to help solve specific problems. In most states, anyone can be a consultant in the field of risk management. Although some states regulate risk management consulting through licensing laws, they are usually poorly drafted and specify educational requirements too low to have any real meaning. This situation isn’t surprising, due in part to the wide range of disciplines that can fall under the mantle of risk management.
Some people call themselves risk management consultants even though they derive much of their income from sources other than client fees. These include: (1) agents, brokers, and others who sell insurance and insurance-related services; (2) college professors and risk managers who “moonlight” by accepting consulting assignments, and (3) specialists in such risk management-related fields as safety, environmental, fire protection, and claims management.
A number of risk management consultants can provide advice not only on conventional insurance but also on such topics as self-insurance, claims management, and loss prevention. Many of these are one or two-person shops; a few are large, multiple-office firms.
WHAT DO RISK MANAGEMENT CONSULTANTS DO?
The work performed by risk management consultants usually falls into three classes: Audits, retainers, and special projects.
Risk Management Audits. Audits assess the overall effectiveness of an organization’s risk management program. Their goal is to identify significant risks and determine the adequacy of protection, the reasonableness of costs, and the appropriateness of internal administrative functions, including services performed by such third parties as agents and brokers.
Retainers. The retainer, which usually is designed to provide the client with expertise on call, might be used by:
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Large organizations with full-time risk-management departments to obtain additional technical resources and objective viewpoints.
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Smaller firms without full-time risk management staff to obtain professional skills tailored to the activity needed.
Special Projects. Special consulting projects include assignments such as evaluation of risk-funding alternatives; design and audit of claim administration programs; owner controlled insurance program feasibility studies; administrative studies and personnel evaluations; pooling and captive-insurer feasibility studies; assistance in selection of insurance brokers, claim administrators, safety specialists and other service providers; training; and development of insurance bid specifications.
WHAT TO LOOK FOR IN A CONSULTANT
A risk management consultant should have two main qualities:
Objectivity. A consultant must be truly independent. Their advice must be free from the direction or influence of others and detached from the risk of financial loss or gain as a result of their conclusions or recommendations. To maintain complete independence, the consulting firm should not be owned by, have an interest in, nor receive any fees or other compensation from insurance companies, brokers, or other entities whose services the consultant might evaluate.
Expertise. In addition to their education and background, a good consultant brings the knowledge and experience gained from working with many types of clients and problems, with most of their time spent in analysis rather than in sales or routine administration. Continuing education should form part of every consultant’s annual plan.
HOW MUCH WILL A CONSULTANT COST?
Most consultants will discuss the proposed scope of work with the prospective client and prepare a written proposal at no charge. The proposal should define the objectives, the scope of work to be performed, the plan of action, and the personnel to be assigned to the project. Billing rates should be quoted for each consultant, together with a probable range of costs. If the project can be defined clearly, a maximum cost might be quoted. Occasionally a flat fee might be quoted for small assignments.
Hourly rates are usually based on: (1) The consultant’s annual base salary; (2) the fringe benefits, office overhead, promotional costs, and profits that must be loaded into the billing rate for the consulting firm to stay in business; and (3) the number of hours available in a year for billing. Billing rates can range from $125 an hour or less for junior risk management consultants to $300 an hour or more for the most experienced senior consultants.
Avoid consultants whose charges are based on a percentage of savings. Many people consider this approach unprofessional because it emphasizes short-term cost reductions rather than on long-term benefits. It also might encourage unethical consultants to recommend the lowest cost alternative rather than the one that best meets the client’s needs.
The conclusion of this article will offer guidelines for getting your money’s worth from a risk management article.
Gary Griffin, ARM, is executive vice president of Warren McVeigh & Griffin, Inc. He can be reached at (949) 752-1058 ext. 228, e-mail [email protected], or visit www.griffincom.com.