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Emergence of Risk

In the dynamic world we live in today, the only constant is change – whether it’s yourself, your industry, or the environment around you…

Take a moment to think about your business. How has it changed in the past five years? Is your environment the same? How will that environment change in the next five years? Sure, some things like company culture can stand the test of time – but what about things outside of your control? The development of new technology, the loss of a key customer or supplier, or a downturn in the economy all impact your business.

As part of the CFA 360° Insurance Program we believe in a comprehensive approach to managing risk: the Total Cost of Risk (TCOR) approach. This concept takes into account a company’s hard and soft costs which contribute to the overall cost of their insurance program. Historically the role of the insurance broker has been centered on reducing hard costs, like premium. While this will always remain a part of the TCOR model, making it your only focus leaves you and your business vulnerable to significant risks associated with soft cost exposures. Examples of soft costs include insufficient limits, losses below your deductible/retention, coverage gaps, and uninsurable losses.

The changing environment your business operates in can lead to an emergence of risk that significantly impacts your TCOR. Often times these developments are difficult to predict, making them hard to insure. Without a focus on the soft cost aspect of TCOR, your business can be left incurring a cost which you did not plan for, and thus, do not have the capacity to absorb. Below are three examples of how the emergence of risk can impact a business.

Technology – Cyber Liability

While we’ve all been aware of the advancements of computer technology and internet connectivity for many years, the risks to businesses have been relatively unknown. For the longest time, many individuals within the insurance industry felt the exposure was limited to large corporations conducting their primary business online. As big box retailers moved from storefronts to websites the risk of a cyber-attack on client information became apparent. What was unknown, however, was the potential scale and cost of such attacks, as well as who could be affected. Target Corp. experienced perhaps the most public breach in recent years when nearly 40 million credit and debit cards were exposed. Target settled with Visa for roughly $67 million, with MasterCard settlements expected to reach similar levels, according to the Wall Street Journal. Many insurance carriers began offering products years ago to cover such breaches, but they unfortunately did not have the loss experience to develop strong products or provide adequate limits. Few in the industry really knew what level of coverage – if any – individual businesses needed.

This is an excellent example of an emerging risk. The expansion of the internet and online commerce happened so quickly that many businesses were unprepared to keep up with the trend, let alone protect themselves against potential exposures associated with it. Within the construction industry, more and more companies are collecting information from their clients online. Whether it’s emails addresses, phone numbers, or billing information, the ease of conducting business online is making the transfer and storage of sensitive information a necessity. We often think of a cyber breach as a direct attack on your company. In some cases, however, smaller companies can be brought into large lawsuits. Hackers can use your network as an access point for a larger company – perhaps one of your supplies or customers. This leaves your business vulnerable to the cyber liability associated with any loss.

Beyond the hard cost ramifications of having to pay for a cyber related lawsuit out of pocket, businesses have to deal with the soft cost ramifications of not carrying enough limits, damage to their reputation, and the potential for lost business. Engaging the CFA 360 Insurance Program in a discussion about how the emergence of cyber liability exposure can impact your business is a great way to protect your company and help reduce your TCOR.

Loss of a Key Supplier

The emergence of risk can manifest itself in many different forms. As we saw with cyber liability, it can be the development of technology that totally changes the way you operate. In other cases, however, it can be something more predictable. The loss of a key supplier can leave a contractor scrambling to complete a job or fill an order. It’s something that many business owners worry about, but not all plan for. Suppliers of parts, materials, and equipment are just some examples of partnerships that – if lost – can drastically impact your bottom line.

When looking at the risk associated with the loss of key suppliers, it’s easy to think of it as a simple inconvenience, but what about the monetary impact? Do you know what it would actually cost you to replace that supplier? How long would it take? Will the next partner be as reliable as the last? These are all considerations when evaluating the total cost of this risk. The new supplier may cost more, take longer to deliver, or have a more limited product offering. If you’re in the middle of a job, the loss of a key supplier can leave you weeks behind schedule, resulting in damage to your reputation, financial penalties, or an inability to take on additional work.

Market Downturn

Markets, economies, and demand can be cyclical. People and businesses prosper in good times and feel the pain in bad. The construction industry is highly sensitive to these swings. One type of emerging risk that nearly every contractor will confront at multiple points in their career is the risks associated with a market downturn. In these situations businesses with a plan stand the best chance of survival.

The unfortunate reality is that a downturn in the economy often results in a reduction in the workforce. According to Economics Modeling Statistics International (EMSI), nearly 2.4M construction jobs were lost during the most recent downturn (2007-2012). Other companies, however, find a way to diversify their product offerings to keep business going. Contractors find synergies in the work they do and adapt to take on new jobs in segments not hit as hard.

There are many costs to these types of industry cycles. Some lost employees may change industries, leaving a talent gap to fill once business picks back up. Other companies have to invest in new equipment or processes to allow them to enter new niches. These are examples of soft costs that are not often factored into the cost of risk. The common thread among companies that are able to weather these storms is the vision to plan ahead and adapt to their changing environment.

Preemptive Fight

The most effective way to limit your exposure to emerging risks is to anticipate them before they occur. The CFA 360 Insurance Program has the resources to assist contractors in developing business continuity plans, conduct coverage analysis, and help identify industry trends. Our experience with similar clients and relationships with insurance carriers gives us access to niche experts that specialize in a broad spectrum of risks – even those that are still developing. The CFA is engaging its members to assist in the creation of an emerging risk Heat Map. The Map allows members to place a series of risks on a sliding scale depicting the frequency and severity (business impact) of certain exposures.

By collecting this feedback from members, the CFA Insurance Program can more effectively address the emerging exposures in the industry and focus of solutions that help limit the Total Cost of Risk. Reacting to a loss after it occurs can leave your business vulnerable. The Heat Map is one way the CFA is preemptively engaging members to prevent costly losses before they occur. It is impossible to plan for every type of emerging risk. With the help of a strategic partner like the CFA, however, it is possible to mitigate the impact these risks can have on your business’s Total Cost of Risk.


Tyler James of AJ GallagherTyler James is a commercial insurance broker focusing on construction industry business for Arthur J. Gallagher & Co. His clients include general and specialty contractors seeking to reduce their total cost of risk. Working with the experienced Construction Practice Team at Arthur J. Gallagher & Co., he provides strategic guidance around contract review, claims management, safety practices and much more. With experience as a commercial insurance construction underwriter, he has a unique perspective, as well as the ability to creatively sell construction clients to the marketplace. Currently, Tyler is in charge of growth and content for CFA 360 ̊, the insurance program for CFA members, with a goal of connecting with CFA members interested in reducing their total cost of risk through engagement with a broker who delivers business insights tailored specific to concrete contractors. You can reach him at 312.416.6826, by email at

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Concrete FACTS, a publication of the Concrete Foundations Association, is THE voice for residential concrete industry news, market intelligence, business strategies, technical solutions, product information, and other resources for professionals in the cast-in-place concrete industry. Subscriptions to Concrete FACTS is available to anyone involved or interested in the residential concrete industry as a service to your industry. Please contact CFA Headquarters to find out more about your free subscription or Email Us