What is Risk?
There seem to be as many definitions of ‘risk’ as there are risk managers, but simply put, risk is anything that impacts your ability to achieve your objectives. Risk can have an upside (like risking a dollar in a slot machine and winning $1,000) or a downside (like crossing the road in the middle of the block and getting clipped by a car).
As a housing provider what are your objectives? What could happen that would impact whether you achieve your goals? Identifying your risks is the first step in developing a risk management plan. (In the context of developing a risk management plan we are only going to look at downside risk.)
What is Risk Management?
Risk management is a system that provides a framework for analyzing risks, deciding how to treat the risks to reduce their impact on your business, implementing risk controls that make sense from a life safety and cost/benefit perspective, monitoring the results to make sure your tactics are working and then making modifications to improve your plan. By identifying and managing potential risk factors, you are essentially doing something that you have done since you were a child. Does this smell safe to eat? Is it safe to cross the road? Should I buy winter tires? Every scenario in life can be analyzed and managed from a risk management perspective. Risk management may not prevent bad things from happening but you have a better chance of making it across the road if you look both ways than if you just step off of the curb.
Review current management practices and identify risks
Investigate and study potential solutions
Select & implement desired solution
Keep records, monitor results and repeat steps as necessary
Why is Risk Management Important for Housing Providers?
Risk management is an integral part of all business strategies. By identifying risks and strategies for mitigating risks some incidents can be prevented and the impact of others can be controlled. For example, inspecting the walkways around your buildings regularly and making repairs, as trip hazards are identified, could prevent a future claim for a broken ankle. Conducting safety meetings with tenants to discuss the use of candles or overloading electrical circuits or throwing lit cigarettes over balconies, may prevent a fire. Ensuring that automatic door closers remain connected could limit a fire to a single unit.
Controlling risks to your properties not only improves tenant and staff safety and security but also makes sure that money earmarked for operations and improvements to buildings is not instead diverted to pay a deductible for an insurance claim or higher premiums because of a large loss. Staff contribute far more to your operation when they are on site than when they are sitting in a lawyer’s office testifying about how often they salted the sidewalk the day Mrs. D. fell.
Identifying Risks
It is easy to say that you want to reduce risk but it means nothing until specific risks are identified and managed. Risks can vary greatly between organizations depending on the community where you are located, the demographics of your tenant population and even the construction type of your building. It is therefore important to first self-diagnose potential risk factors when constructing a risk management plan. Michelle Reid of Canadian Risk Manager Magazine provides a list of ways in which risk can be found;
“Common techniques used to gather and document information about a company’s risk exposures include:
- Surveys or questionnaires similar to an insurance application
- Hazard identification and vulnerability workshops where employees get together and brainstorm potential risks
- Management interviews
- Environmental scans
- SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis”
Heat Map
Your first step in developing your plan is to sit down and identify the risks to your operations and to your buildings. Using any of the techniques listed (personally I like the brainstorming method), write down everything you think could impact your ability to achieve your objectives, from the imposition of new Rent-Geared-to-Income (RGI) calculations under the Housing Services Act to a catastrophic fire to a bed bug infestation. Don’t throw out any idea however wild.
Once you have all of your risks identified, draw a heat map on a piece of paper. A heat map is just a graph with an x- and a y-axis, where likelihood of occurrence is on the x-axis and severity if it does happen is on the y-axis.
Map all of your risks on the graph by estimating the likelihood that risk could occur and the potential impact if it does. All your risks will fall into one of four categories or quadrants of your graph:
- High Frequency/High Severity
- High Frequency/Low Severity
- Low Frequency/High Severity
- Low Frequency/Low Severity
The next step in developing a risk management plan will be selecting which risks to address first, starting with those identified as being high frequency/high severity, and developing tactics to reduce or mitigate those risks.
Looking Forward
One of the fastest growing risks in the housing sector is hoarding. Tenants who accumulate goods and materials in their living space can pose a serious danger to not only themselves and other tenants, but to you as a housing provider. Our next blog will explore the complicated issue of hoarding and how to manage the risk.
A factory building collapsed in Sukagawa city in northern Japan on March 11, 2011. (FUKUSHIMA MINPO/AFP/Getty Images)
Natural disasters appear to becoming an increasingly more common occurrence. What do these events and their related costs mean to you as a housing provider?
So far in 2011, reports indicate that the earthquakes in Japan and New Zealand, the flooding in Australia and the unrest in the Middle East combine for an estimated cost of $60 billion in direct insured losses to insurers. This does not even include the recent tornadoes and flooding in the United States which are expected to cost upwards of $32B in insured and economic losses. Let’s also not forget the oil spill in the Gulf of Mexico in 2010 ($3.5 billion), the 2004 earthquake and tsunami in Southeast Asia ($4 billion) or Hurricane Katrina in 2005 ($43.6 billion).
Natural disasters are considered catastrophes and insurance companies purchase their own insurance coverage, called reinsurance, to protect themselves against these types of losses. Actuarial studies establish expected losses (both catastrophic and non-catastrophic) which insurers rely on when forecasting how much money they will need to pay for future claims. That number is then used to decide on premiums to charge consumers. When losses exceed these estimations, they deplete the funds set aside by the insurance companies to pay claims. That fund, or claims reserve, must then be replenished to ensure there is enough money available in future years. To increase reserve funds, the insurance companies must in turn increase premiums.
The Effects on the Insurance Company
Not only premiums are affected by unexpected catastrophes – virtually every phase of an insurer’s operations is affected. Insurers must respond, and respond swiftly, to their policyholders and this means more than just paying out claims. Internal and external adjusters are assigned, third party restoration and repairs firms must be retained and policyholders must be reassured that they will be taken care of. Resources in the area of the loss become scarce because of high demand and additional resources must be brought in from far away areas, unaffected by the event, and this costs the insurer more dollars than expected. This also holds true for large, non-catastrophic losses.
VIDEO: Risk Insurance Consultant John Sloan discuss how earthquakes have affected insurance companies, and the need to reinsure following the quakes has driven premiums up nationwide.
When an unexpected large and/or catastrophic loss occurs, which depletes claims reserves and increases administration costs, insurers review their pricing practices – that is, how much premium are they going to charge the client and how that premium is determined. When a large number of these losses occur or when the frequency of claims increases, as we have seen in recent years, pricing methodologies are changed for all clients in the sector experiencing these losses and underwriting standards and premiums are adjusted permanently to reflect the new risk environment. Renewal timing following a large loss becomes longer because insurers require more time to process underwriting information and the time to run their risk models is longer. Insurers wait longer and are reluctant to offer renewal terms too early, in case additional claims occur and they need to make last minute increases to premiums.
Catastrophic incidents contribute to higher insurance premiums for everyone, even when the catastrophes occur in seemingly far away places or when we boast good claims records. When the claims are closer to home the impact can be even greater.
The Effects Felt in Canada
Catastrophic incidents contribute to higher insurance premiums for everyone, even when the catastrophes occur in seemingly far away places or when we boast good claims records. When the claims are closer to home the impact can be even greater.
Although the Canadian insurance market is somewhat stronger than other markets because of prudent and conservative regulators, most large insurance companies are international and so the market here will reflect the costs of events that seemingly have no direct impact on our daily lives. Because of this, insurance can be frustrating.
While we cannot control whether there is an earthquake in Japan or a tornado in Joplin, or a wildfire in Slave Lake, there are steps that we can take as homeowners, tenants and housing providers to affect our premiums. And it starts with developing a risk management plan – the subject of my next blog.
A lot of you have expressed interest in the new common room insurance recently made available exclusively to residents of housing providers insured under SHSC’s group insurance program. I thought I’d take this opportunity to address some of the most frequently asked questions about the new program.
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Do my residents need this insurance for regular meetings or casual gatherings (i.e.: teas, card games)?
No. This insurance is intended for one-time events that may or may not include alcohol. Your residents may want to host a family dinner or other celebration like a wedding shower and ask for the use of your common room for such an event. Whether you charge a rental fee is up to you, but you should consider adding an insurance requirement to your usage agreement that requires event organizers and/or hosts to purchase event insurance coverage for it.
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We rent our common room out several times a year. Is this insurance available on a yearly basis or only for one event at a time?
Because the intent of the common room insurance is to cover one-time events, a new policy must be purchased for each event separately.
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Sometimes we rent our common room to outside agencies or organizations. Can anyone buy SHSC’s common room insurance or is it available only to my tenants?
Anyone renting your common room for an event may purchase the insurance, but outside agencies or organizations will likely already have their own insurance coverage in place and won’t need to buy additional coverage. Simply ask them to have your corporation added to their policy as an Additional Insured for the event and ask for proof of the insurance.
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What is the benefit to my corporation in requiring our residents to purchase their own insurance? Can’t we rely on the corporation’s insurance policy?
Yes, you can rely on your corporation’s insurance policy to cover you for these events, but by doing so, any claims that arise from an event in your common room put on by one of your tenants or outside agency will be reported under your policy under your corporation’s name. This means that your insurance company will have to pay costly investigation and legal expenses to defend you against allegations made surrounding the event, even if your only involvement was to supply space for the event to occur. Your claims history and loss record will reflect these types of claims as well and may affect your insurance premiums. In addition, if the claim is settled for money damages, you will have to contribute your deductible to the settlement.
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But what if my corporation is named in a lawsuit anyway along with the event organizers? Won’t my insurance policy still have to respond to it?
No. If your residents purchase SHSC’s common room insurance for their events, your corporation will automatically be added to the policy as an Additional Insured so that even if you are named, you are protected. The common room insurance policy will be called upon to respond, not your corporation’s policy. When a policy is purchased, a copy of the Certificate of Insurance will be sent to your office for your records.
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Our common room rental contract and/or user agreement does not currently have any insurance requirements in it. Should we add a requirement in and where can we get help with the wording?
If you are going to make insurance a requirement of the rental contract or user agreement, the wording for it should be added to your current contract or agreement. Any wording should be clear and unambiguous. Your best option for assistance with wording is to obtain legal advice.
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How much does the insurance cost and how do our residents apply for it?
Premiums will vary based on the number of expected attendees and whether alcohol will be served. Rates start as low as 27$ for coverage of $2,000,000. Applications and additional information may be obtained from our website or by downloading the application form.
Further information on common room insurance can be obtained in our latest issue of Risky Business and/or from my 2010 five-part blog series:
If you drive, you need auto insurance and you have probably heard about the auto insurance reforms that became effective in Ontario on September 1st. What you may not have heard about though, is what those reforms are and why they were necessary.
The auto insurance industry has been faced with an overwhelming increase in costs and fraudulent claims over the years and needed to do something to put an end to, or at least reduce, the number of illegitimate claims made. According to Finance Minister, Dwight Duncan, between 2004 and 2009, caregiver costs ballooned 450%, costs of exams and assessments skyrocketed 258% and housekeeping costs went up 280% while the number of accidents stayed stable.
With an eye to reducing costs, preventing fraudulent claims and controlling premium increases for responsible drivers, Ontario has introduced many changes to the auto insurance industry that will give consumers choice over how much coverage they purchase and at what cost. Some of these changes include reduced limits to the standard, mandatory auto insurance benefits packages and different “buy-back” options.
With more choice; however, comes more responsibility on the consumer to be educated on the options available. The Insurance Bureau of Canada has posted an easy-to-use guide to these changes on its website. Learn everything you need to know by visiting their website at www.ibc.ca. Financial Services Commission of Ontario (FSCO) has also posted information on the auto insurance reforms.
As a housing provider and landlord, you are constantly on the lookout for hazards and potential safety risks. But did you ever think that potting soil could pose a fire hazard?
Potting soil has a different composition than regular ground soil, consisting of 85% peat moss and 15% other product. The point of this mixture is to produce a light, well draining environment that allows plant roots to breathe. However, the combination of these ingredients also makes the soil combustible.
Unwatered potting soil absorbs heat and the resulting “fires all start by breaking out through the base of the planters…they are absorbing heat, they are retaining heat and eventually they break down,” according to John Coull, manager at Origin and Cause, a fire investigation and forensic consulting firm.
You can find more information on this new trend of residential fires by reading this article in a recent edition of Canadian Underwriter.
Over the last few weeks, we’ve talked about the different considerations when renting out your common and/or party rooms. What have we learned?
The first thing to consider is what type of event will be hosted in these rooms and whether alcohol will be served. If you’ve determined that alcohol will be served, you should ensure that the event organisers obtain the requisite Special Occasion Permit (SOP) from the Alcohol and Gaming Commission of Ontario.
The next thing to consider is whether to rely on your housing corporation’s own insurance and whether to enter into a rental contract that clearly outlines each party’s rights and obligations regarding the rental of your common and/or party room. While the existence of a contract will not likely absolve you of all liability, it will certainly aid in any defence your insurance company lays out for you.
Risky Business - Spring 2010 Edition
Another option is to require event organisers to purchase their own insurance coverage for their events, commonly known as Special Event Insurance or Social Host Liability Insurance. For additional information on this type of insurance, visit Elliot Special Risks.
Lastly, it is important to remember that your housing corporation’s insurance policy does not provide coverage to any property or contents belonging to your tenants, guests, event organisers or event attendees. Event organisers should be made aware of this and it should be spelled out in your rental contract or agreement. Property belonging to your housing corporation will be covered as long as the property was lost or damaged due to a covered risk.
In our ever-increasingly litigious society, it is important to do everything possible to reduce our exposure to common hazards associated with the shared spaces in our residential buildings. For more risk management tips, check out our newest edition of Risky Business.
When renting out your common and/or party rooms, one last thing to remember is that any property belonging to your tenants, the event attendees or organizers is not covered by your corporation’s insurance policy. It is important to make this clear when you are renting these rooms and in any rental contract or agreement. If; however, anything happens at or during the event that results in loss or damage to property belonging to your housing corporation, your policy will provide coverage as long as the cause of the loss or damage is an “Insured Peril” (aka: a covered risk).
We’ve talked about several different aspects of the risks and issues for you to think about regarding common and/or party room rentals recently and our final installment in our series will recap them all. In the meantime, refer to parts 1, 2 and 3 for a refresher or for anything you may have missed.
Party Room/Common Room Rentals Series
Last time, we talked about the issues and risks of relying on your corporation’s own insurance coverage when renting out your common/party rooms. This week we’ll tackle another consideration when renting out these rooms: requiring the event organizers to purchase their own insurance.
Special Event insurance, also known as Social Host Liability insurance, provides coverage for a specific event and its organizers, and often includes general liability and server liquor liability. If something should happen at or during the event, the injured party can make a claim against the event’s insurance policy, and not your corporation’s policy.
It is important to note that special event liability insurance does not cover the personal property of the event’s organizers or its attendees, nor does your corporation’s insurance provide this coverage. This is what we’ll talk about in part 4 of our series on common rooms.
For more information about special event insurance, visit Elliot Special Risks
In my last blog entry, I talked about the importance of ensuring that event organizers, who are using building common rooms, obtain the relevant Special Occasion Permit from the Alcohol and Gaming Commission of Ontario, if they are serving alcohol. Today, we’ll look at the liability issues that your corporation could face by allowing events that serve alcohol to take place on your property.
Some questions you need to consider: what happens if a minor consumes alcohol at the event and becomes ill? What if someone leaves the event after consuming alcohol hosted on your premises and gets into a car accident that results in injury or death? The injured party or parties could sue your corporation – even if your only connection to the event is the location.
Protecting yourself with a rental contract
So how do you protect yourself? Make sure you have a plainly written rental contract with unambiguous language that clearly sets out each party’s rights and obligations concerning the rental room. Your contract should include a clause that clearly indicates your corporation is not liable for injuries or damages incurred during the event. A carefully executed contract and a Special Occasion Permit will assist should you find it necessary to defend the corporation against a lawsuit.
Unfortunately, these documents likely won’t be enough to fully absolve you of liability. A better option is to require that the event organizers purchase their own insurance coverage. This is called Special Event insurance or Social Host Liability insurance and that’s what we’ll talk about next time.
Many of you have common rooms and/or party rooms for your tenants’ social events or community meetings. But did you know that there are insurance considerations associated with the use of these rooms? Here are a few things you should know.
There are two ways to insure these events. The first is to rely on your own insurance. The second is to require the event’s organizers to provide their own insurance coverage.
Should you choose the former, there are two important considerations from an insurance perspective: the availability of alcohol at these events and who is responsible for property belonging to the events’ organizers and attendees.
Today, I will talk about the first of those considerations, which is whether or not alcohol will be served at or during the event. If alcohol is being served, the organizers will be required to obtain a Special Occasion Permit (SOP). There are three classes of SOPs; a Sale SOP, a No Sale SOP and an Auctions SOP. Details of these permits and application forms may be found on the Alcohol and Gaming Commission of Ontario’s website.
To protect yourself from liability, you should ensure the event organizers have applied and obtained the relevant permit and should take a copy for your records.
Next time, I will talk about liability and insurance concerns surrounding alcohol-included events.
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