Volatile Economy Calls for Better Risk Management Techniques

Identifying and analyzing potential risks and strategizing to avoid and reduce them are critical to successful risk management. Useful risk management techniques include certificate of insurance tracking, safety pre-qualification, regulatory screening, and vendor credentialing.

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Published November 04, 2020   •   7 minute read

In recent years, companies have become more proactive about their risk management strategies—and for good reason. Today’s business arenas are growing more volatile across the board. Whether in real estate, construction, retail, finance, education, or healthcare, project managers lean on rampant outsourcing of jobs to third-party vendors and subcontractors to complete smaller parts of larger projects.

The so-called "gig" (aka "shared" or "on-demand") economy garnered a lot of attention in the mid-2010s, but the economists who predicted it in a widely cited 2015 analysis, Alan Krueger of Princeton University and Lawrence Katz of Harvard, now say that their initial theories were wrong, according to a Fortune article by journalist Erik Sherman. 

Many Americans do rely on contract positions, however. A 2018 Gallup analysis reported that 36 percent of U.S. workers do some form of gig work, and the U.S. Bureau of Labor Statistics (BLS) estimates that 3.8 percent of workers held contingent jobs in May 2017. 

Data is not yet available to illustrate the long-term economic ramifications of the novel coronavirus (COVID-19) pandemic, but despite heavy corporate casualties—within the airlines and hospitality industries, among others—several sectors have flourished, according to an article published by the U.S. Chamber of Commerce in March. Among those thriving, it reads: cleaning and delivery services, grocery stores, canned and jarred food companies, fitness equipment manufacturers, telehealth providers, gardening suppliers, and more. 

A May 2020 story in Time by journalist Alana Semuels details an influx of displaced workers to contract positions, specifically gig work platforms such as Upwork and Amazon Flex, to stay afloat. 

So why is this? And what does this have to do with how we manage risk?

 

The Truth About “Contingent Workers”

In the book The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It,” David Weil, author and former Administrator of the Wage and Hour Division of the U.S. Department of Labor under President Barack Obama, suggests that sustaining the employer-worker relationship ranks far below building a devoted customer base and delivering value to investors. His analysis points to large corporations ditching their roles as direct employers of the people responsible for their products in favor of outsourcing work to small companies that compete fiercely with one another.

Outsourcing can also be cost-effective for businesses. BLS estimates that benefits account for 30 percent of employee compensation. Since contractors do not get the health insurance coverage of full-time workers, outsourcing can slash a company’s expenses.

In a volatile economy, reducing the budget may be essential to business survival. According to an October 2020 piece in USA Today by reporter Mike Snider, 32,700 franchised businesses closed by the end of August 2020 as a result of the pandemic, and a third of those did so permanently. It cites an International Franchisee Association estimate of up to one in 20 small businesses ultimately shuttering their doors unless more relief becomes available. With so many struggling, it should come as no surprise that many are cutting costs wherever possible, including by replacing full-time employees with contract workers.

Workers are also leaning more heavily on contingent work. A survey conducted by the nonprofit think tank Pew Research Center in August 2020 found that approximately one in four adults lost their job due to the crisis or shared a household with someone who did. Another 32 percent took pay cuts. As a result, many are turning to gig work to make ends meet. According to a June 2020 article by journalist Shannon Liao published by CNN Business, many experts now predict a continued shift away from full-time jobs towards gigs and side hustles. 

 

Risky Implications

Regardless of causality, third-party outsourcing intensifies risk management procedures. Between the additional bodies, the insurance implications attached to each, special license requirements and subsequent documentation, and ever-changing rules and regulations for government compliance, there are a lot of moving parts to track and manage.

Compliance issues are bound to arise; it’s imperative to have a plan in place for each potential risk event. So, let’s get back to basics.

 

What Is Risk Management?

Risk management is the identification, analysis, and prioritization of risks to avoid, minimize, or eliminate their probability and/or impacts.

The practice of this process might look different from industry to industry, but the goal of risk management remains the same: to preserve assets and ensure continued success. 

 

4 Questions to Ask When Determining a Risk Management Strategy

  1. Is there a proper vetting process in place for vendors, suppliers, and subcontractors?

  2. Are all registration and compliance documents organized in a central location? This includes insurance, licenses, and any other qualifying data.

  3. What happens after we collect data and documents? How often is it updated and verified?

  4. If/when an incident invariably does occur, how will you prove due diligence on every vendor, supplier, and subcontractor?

 

4 Risk-Mitigating Practices

Successful risk management involves identifying and analyzing potential risks, then planning for their avoidance or reduction. Several risk management techniques that provide opportunities for proactive risk management include certificate of insurance tracking, safety pre-qualification, regulatory screening, and vendor credentialing.

 

Certificate of Insurance (COI) Tracking

Even the most sophisticated contract, lease, or loan agreement will not protect your organization without compliant insurance to back it up.

To ensure vendor compliance and subsequently limit their liability, risk management teams collect what are called certificates of insurance (COI). COIs serve as proof that an insurance policy has been issued but without the bulk of the policy itself.

Note: Collecting COIs is merely the first step in ensuring compliance. To guarantee loss transfer, it is imperative to exercise due diligence in reviewing full insurance contracts as well as collecting and tracking COIs.

 

Safety Pre-Qualification

Health and safety pre-qualification is vital for assessing contractors. This step works to ensure potential hires:

  1. Are committed to safety
  2. Have good systems to back up this commitment
  3. Are capable of working safely

An efficient safety pre-qualification procedure ensures your vendors and subcontractors are aligned with your organization's standards by streamlining the data collection and review process and leveraging dedicated compliance analysts to verify electronic medical records (EMR) and Occupational Safety and Health Administration (OSHA) data.

 

Regulatory Screening

The regulatory landscape has changed dramatically in recent years. The challenges of governmental and global regulatory compliance that were once limited to financial services organizations are now extended to risk management professionals in nearly every industry to cooperatively combat the broadened scope of large-scale criminal activity.

Any company in the United States must adhere to:

  • The Foreign Corrupt Practices Act (FCPA)
  • Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept (and) Obstruct Terrorism (USA PATRIOT Act)
  • Export Administration Regulations (EARs)

Failure to comply with these regulations can carry high penalties, regardless of the industry in which you operate. Regulatory screening should work to identify compliance issues related to the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury, FCPA (anti-money laundering), adverse media, trade licenses, etc.

 

Vendor Credentialing (VC)

Vendor credentialing entails assessing the qualifications and backgrounds of potential vendor hires for legitimacy. This is especially important for healthcare and environmental professionals wherein VC is used to objectively evaluate a vendor representative’s credentials for:

  • Providing a service
  • Ensuring proper training
  • Proving competence
  • Maintaining compliance with health and safety requirements
  • Continuing equal opportunity standards for vendors
  • Exposing fakes and frauds via documentation

For the above purposes, vendor credentialing companies are generally interested in documentation for the following areas:

  1. Immunizations and medical tests: The most commonly requested are MMR and HepB vaccines and TB tests.
  2. Background checks: This includes drug screens, criminal background checks, and sexual offender registry checks.
  3. Hospital policies and procedures, possibly hospital orientation
  4. Education and training: This includes product competency, HIPAA policies, code of conduct/ethics, OSHA/bloodborne pathogens.
  5. Statement of insurance liability letters

 


Outsource Your Risk Management to BCS

Business Credentialing Services prides itself on providing the perfect amalgam of cutting-edge technology and outstanding customer service. The BCS App's proprietary software integrations—InsurComply, SafeComply, and ReguComply—are built upon best-in-class data sources and work not only to track the documents necessary for effective risk management, but also to help correct compliance issues within those documents. 

By outsourcing your COI tracking, safety pre-qualification, regulatory screening, and vendor credentialing duties to BCS, you could free up several weeks' worth of work for you and your team per year, so you can get back to doing whatever it is you do best.

Contact BCS today to schedule a demo, find out which services are right for you, and get started constructing your customizable risk management plan.

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