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Beyond the Worst-Case Scenario
I n August of 2017, Hurricane Harvey devastated the Southeast United States and caused record-breaking flooding in Houston, Texas. I’m from Houston and I still have rental properties in the area. Three of my rental houses were flooded out. When I went down to assess the damage, I had to take a boat in order to reach one of the houses. Longtime readers of my newsletter might remember when I wrote about this experience and the lessons I learned. We all knew Houston had substantial risk of flooding. We never imagined how bad it could be. In the risk management business, we identify exposure to loss, then we try to determine the maximum possible loss in dollar terms. Basically, we have to ask, “How bad could it be?” After Houston, I learned that we had greatly underestimated how bad things could be in terms of flooding. No one had predicted that Houston could get 50 inches of rain in a 72-hour period, but that’s what happened in 2017. Hurricane Harvey expanded our idea of exactly how bad things could be. A paradigm change is something we’re seeing again during the COVID-19 pandemic. This pandemic has exposed a new loss for businesses that we had never anticipated before. I’m not talking about the virus — I’m talking about the government closing down businesses due to the threat of the virus and then doing it for an indeterminate amount of time. There are situations in which you might expect the government to close your business down for a few days. For example, when a hurricane is approaching in order to evacuate, or after a natural disaster, while the water recedes or access roads are repaired. Nobody could foresee that the government would shut folks down for
weeks, potentially even many months, based on the anticipation of an event and with the end date determined by them, not the business owner. From my little corner of the world, in a span of less than three years, we’ve seen two worst-case scenarios that were far worse than I ever anticipated. No one in Houston ever thought they would get that much water in such a short period of time. Likewise, I don’t think anyone anticipated that the government would shut businesses down for so long. How does a business prepare for that? I don’t believe insurance coverage for government mandated shutdowns will be available anytime in the near future. Even if it is, it is unlikely anyone will be able to afford the premiums for this kind of insurance at this point in time. So if a situation cannot be adequately or efficiently addressed through insurance, then other methods will need to come into play. In my opinion with what I know today, future pandemic situations will demand a mitigation-type solution. I’m thinking businesses will have to proactively manage the financial risk through a combination of lines of credit, other banking arrangements, or through their own balance sheet. Additionally, businesses will want to be creatively prepared to keep operating should their physical establishments be shut down. Is it possible that businesses that were deemed ”essential” this time might not be so fortunate next time? And finally, given that the government has now done this to us once, will they be more likely or less likely to do it again? To do this right, we should challenge our assumptions about how bad things could really be. We better prepare for the worst, then maybe prepare a little more ... ?
“Frommy little corner of the world, in a span of less than three years, we’ve seen two worst-case scenarios that were far worse than I ever anticipated.”
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For over 40 years, CareLink, a private nonprofit, has served older Arkansans and their families. Their mission is to help older people remain active and independent by providing valuable resources. This includes meals and home care as well as legal advice or Medicare drug plan reviews. Luke Mattingly, president and CEO of CareLink, has been with the organization for 16 years and is extremely dedicated to the organization’s mission. “I’m blessed to have an awesome staff who work tirelessly to help older people, even during the pandemic,” Mattingly says. “We were up and operating through the whole COVID-19 pandemic as more and more older people reached out for help. I am so impressed by my team and their efforts to help older people remain healthy, independent, and in their homes for as long as possible. The people who stay on the team at CareLink are here because, like me, they love the mission. No matter how difficult the day has been, I can rest easy knowing my team has made a difference in the lives of the people we serve.” As a private nonprofit, CareLink relies on grants as well as their dedicated volunteers and generous donors to help further their mission. It’s only through this support that CareLink is able to make a remarkable difference in the lives of people in our community. “Sometimes, people don’t ask for help until their situation is really dire,” Mattingly says. “I remember one woman who was in her late 80s and had been living alone since her husband had passed away a decade before. She called us in February and when our care coordinator arrived at her house, they found that she’d put a shower curtain over the kitchen door and was using an electric hot pad to keep warm. Her gas line had broken and because she didn’t have the money to fix it, she’d been without heat for six months. She’d been using the hot pad to heat water to bathe and cook with. “CareLink was able to go in and, thanks to our emergency fund and the extreme generosity of one of our donors, we got in touch with the gas company, fixed the pipe, and got gas turned back on at this woman’s house. She had heat and her gas stove again. Stories like that really reach out to me and tell me how important CareLink is to help older people.” The remarkable thing about CareLink is that they are able to help folks on this level every day. Their team is out in people’s homes daily, helping with their personal hygiene, getting them from their wheelchair to their recliner, driving them to doctor’s appointments, and providing countless other services that sound so simple but make a world of difference.
HOWWELL ARE YOU TRACKING YOUR BUSINESS ?
In the last few months, the coronavirus pandemic has forced businesses across the country to tighten their belts. Odds are your company is among them, but even if you’re doing well, accurately tracking your business’s performance is more vital than ever. Of course, this is easier said than done. Even in good times, it’s difficult to know which key performance indicators (KPIs) to track daily, weekly, or monthly to get an accurate picture of how your business is doing. However, many successful entrepreneurs report that three KPIs rise to the top: churn, pipeline revenue, and average annual revenue per employee. Churn This metric will tell you how many customers leave your business in any given month, which will then tell you how many new customers you need to bring in the following month to break even. If you track this KPI weekly and monthly, patterns will start to emerge, and you’ll be able to find holes in your systems and processes more easily. Then, you can take proactive steps to reduce your churn. Pipeline Revenue Your pipeline revenue is the total sales volume you’d have if you won each and every piece of business you quoted over a given period of time. When compared with your actual sales volume each month, it becomes an incredibly valuable number for setting goals and tracking. For example, if you need to produce $100,000 in new pipeline revenue to close your goal of $30,000 in sales each month but are only at $54,000 in pipeline revenue 20 days into the month when you should be at $67,000, then you’ll know that you’re falling behind and need to make adjustments. Average Annual Revenue per Employee (RPE) Most companies with over $1 million in revenue make a minimum of $100,000 in average annual RPE, and it’s not uncommon to see small businesses making $125,000, $150,000, or $200,000-plus per hire, depending on the industry. The higher your RPE, the more effective your business is at maximizing its greatest resource: the people who work there. This number can become skewed or decrease if you’re growing quickly and hiring or if you’ve recently laid off staff. If you haven’t made changes and your RPE is under $100,000, you’re either overstaffed or facing a struggle ahead. As you’re tracking these KPIs, remember to be skeptical. If a metric looks too good to be true, it probably is! So dig in and double-check the math. If you uncover an inaccuracy, you can take steps to fix it, and if you find the number is accurate, you can learn from your successes. Armed with these metrics, you will be in a much better spot to be proactive in your business and solve minor problems before they ruin your month, quarter, or year. It’s a win-win situation, which is exactly what we need in these tough times! 3 Key Performance Indicators toWatch
Learn more about CareLink and how you can support their mission at CareLink.org .
2 • www.INSURICA.com • Specialized Insurance Programs for Specialized Industries.
DANGER ON THE ROAD CAN TECHNOLOGY REDUCE THE RISK OF TRUCKING ACCIDENTS?
A ccidents caused by large commercial trucks are on the rise. Data from the Federal Motor Carrier Safety Administration (FMCSA) shows that in 2010, the number of people injured in a large truck or bus crash was 106,000. By 2017, that number had risen to 170,000. The number of deaths from these crashes is also increasing, from 3,597 in 2010 to 5,005 in 2017. Experts suspect the increase in the number of accidents is a result of an increase in congestion. Drivers in the United States are traveling twice as many miles in their vehicles now than they were a decade ago. There are also more truck drivers on the road. The FMCSA reports that between 2010 and 2017, the number of registered large trucks and buses increased by about 30%. Trucking companies and businesses that rely on delivery drivers must develop a serious approach to assessing the risk of accidents and take steps to reduce these risks. Unfortunately, traditional loss-control measures, like safety and training programs, aren’t as effective in the trucking industry as they could be. This has to do with the high turnover rate of long-haul truck drivers, which account for up to 25% of employed truck drivers. The American Trucking Association has been reporting a labor shortage in the trucking industry since 2005. When the Bureau of Labor Statistics (BLS) looked into the matter, they noted that there was a 94% turnover rate in long-haul trucking for large motor carriers and 79.2% for small ones. On average, a driver for a long-haul trucking company will move on to a new occupation after about a year. This is a stark contrast to local trucking companies where the turnover rate is 12.7% and drivers tend to last eight years. It isn’t just that there aren’t many drivers in the trucking industry. The BLS reported that long-haul trucking is unappealing to many potential employees. This is why traditional safety training might not be enough to address the risk of trucking accidents. Traditional strategies are not the best fit for companies that have to replace their entire workforce every year. This is where technology can provide great value.
In December 2019, a federal rule requiring motor carriers to use electronic logging devices to track drivers’ hours went into effect. This will help address a big safety issue: drivers exceeding the number of hours they are safely allowed to drive. The FMCSA has claimed that mandating these devices will lead to 1,844 fewer crashes, 562 fewer injuries, and 26 lives saved annually. Taking this technology one step further, Progressive Group, the nation’s largest commercial auto insurer, has begun offering a Smart Haul telematics program, which provides discounts for safe driving and incentivizes companies to make sure their drivers are practicing safe habits. The Smart Haul program has been expanded to 46 states and collects data from the driving habits of commercial drivers to make meaningful predictions about risk and driver behavior. Progressive also aims to offer more value-added benefits to policyholders that include alerts when a driver is speeding and maps that show the location of every truck in a fleet. Progressive’s Smart Haul program isn’t the only avenue for using technology to mitigate the risk of trucking accidents. In an interview with Insurance Journal, Tommy Ruke, founder of the Motor Carrier Insurance Education Foundation, stated that event recorders and driver assistance devices can also be beneficial. Trucking companies can even make small investments that have a big impact. “All (motor) carriers should have forward-facing cameras,” Ruke said. “I have no idea why they are not installing them. They are relatively inexpensive — $400 or $500 — and they record what happened.” It’s clear that integrating technology as a loss-control measure in the trucking industry has the potential to reduce the number of accidents we see on the road. Additionally, these technologies can be used after an accident to paint a clear picture of the events leading up to the accident. This information can then be used to take the necessary steps to help prevent future accidents.
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INSIDE This Issue
Prepare for the Worst … andThen Some page 1
Are You Tracking the Right Metrics?
Local Nonprofit: Supporting Our Community page 2
Technology and Trucking Accidents page 3
Maximize Your Sales With ‘The Challenger Customer’ page 4
‘THE CHALLENGER CUSTOMER’
How to Sell to Your Holdouts
selling is necessary, but with the right understanding and insight into how you can truly change their company for the better, you can hook a customer for life. Their support for your product or service will surpass that of even their most receptive team members because you focused on the biggest challenge. That’s the ultimate difference between high-performing sales teams and those that meet the bar by reaching for easy sales. If you want to take your sales to the next level and connect with
The ideal customer is an eager buyer who’s ready to jump in from the first pitch. You have them engaged and committed, and all that’s left is to sign on the dotted line. You’ve made a sale with a lasting customer — right? Perhaps, but numerous studies show that maybe it’s not that simple. In “The Challenger Customer: Selling to the Hidden Influencer Who Can Multiply Your Results,” authors Brent Adamson, Matthew Dixon, Pat Spenner, and Nick Toman explain that creating and focusing a plan on the customers who appear cold to your offer is actually the key to exponential sales. If your product or service can appeal to a reluctant audience, your business has the potential to maximize revenue and retention. When a company makes the decision to buy, it usually isn’t the result of one individual. Instead, it’s often a group discussion, and a vocal company leader can kill the deal. You may have sold most of the team on the offer, but with only one holdout, your most promising message could be lost. “The Challenger Customer” provides research-based evidence to help you pinpoint who will be the hardest to persuade and how to focus on them. You may not be able to outright convince them that what you’re
more customers, you have to sell to the holdouts. “The Challenger Customer” provides you with the tools you need to get started.
4 • www.INSURICA.com • Specialized Insurance Programs for Specialized Industries.
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