By Charles T. Wilson, CMC, CRM, RPLU
We’ve all heard of the Law of Unintended Consequences. It’s amazing how it creeps surreptitiously into so many great business plans.
Great plans can solve real problems ~
A multi-location retail chain with challenging Workers’ Comp losses decides to set up an incentive plan for store managers. Fewer losses would mean higher bonuses.
An expanding service company needed reliable customer service calls and decided to provide company cars to key technicians. Regular car maintenance and a good looking fleet would improve dependability and enhance the company image.
A fast-growing professional firm was swamped with new customer contracts and lots of new insurance coverage needs. They had little time and no real experience, so they decided to let their new insurance broker handle everything.
Other “great plans” I’ve seen recently include a spiffy new marketing-oriented website and a business owner spending money to be a better acquisition target. And then there is Georgia’s state school system wanting teachers to improve under-performing schools – what a great plan.
What could go wrong?
A lot can go awry when we don’t recognize the complexity of certain plans, or when conflicts of interest get in the way. Some complexities from the plans above are:
Incentives are supposed to alter behaviors – but be careful what you measure. If you want fewer employee injuries, will some managers just not report seemingly minor accidents? This can result in much larger claims down the road, in addition to insurance fines and safety penalties.
Company cars can solve one problem and create others: losses can skyrocket with personal, weekend and family use, for example. A “bad” weekend accident can negatively impact a company’s reputation. Clear policies and careful procedures can have a beneficial impact on accident frequency and severity.
A newly chosen insurance broker with little prior industry experience and limited time for contract reviews can miss a large number of insurable exposures. Gaps and misunderstandings easily occur when you “abdicate” something you don’t fully understand – like your car to the mechanic, your IT system to a geek on adrenaline, or something as complex as your insurance program to a new broker.
Georgia is now investigating 178 teachers and principals for possible cheating – changing student answers to show improvement, to keep their funding and save jobs.
Unintended consequences seem to hide around every corner. The Risk Manager wants to avoid these risks by using two tried and true techniques:
1. Clear communication – with input from all sides, and
2. Careful oversight – for complete understanding and goal fine-tuning along the way.
Please call or email with additional thoughts and examples – or to discuss concerns.
Charles T. Wilson is a Certified Management Consultant (CMC®), confidential advisor, speaker and Principal of RiskSmart Solutions®. He is a specialist in insurance and risk management and does NOT sell insurance. Clients save time and money with objective advice on getting the right broker and service, the best coverage and price, with the least amount of risk.
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