The Manufacturing Executive
The Manufacturing Executive

Episode · 1 year ago

Not By Accident: Risk Management for Manufacturing Executives w/ Van Carlson

ABOUT THIS EPISODE

Risk management isn't an accident. If we're going to survive, then we have to plan for unforeseen events. Like 2020… and 2021.

But you can't insure everything, and rate increases seem to be hardening. What can manufacturers do to manage risk more effectively?

In today's episode, I talk with Van Carlson, founder and CEO at Strategic Risk Alternatives. Van brings to the conversation more than 25 years of experience in insurance. He focuses on solving client risks through risk alternatives and management.

Here's what Van and I discussed:

  1. What manufacturers can do about the increase in traditional insurance premiums
  2. How to prevent gaps in risk management strategies
  3. The risk management tools available to manufacturers


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I can't tell you because it's set meetings where they sit. I've always wonder how I can manage that risk more effectively. I just didn't know this is the way you can do it. Welcome to the manufacturing executive podcast, where we explore the strategies and experiences that are driving mid size manufacturers forward. Here you'll discover new insights from passionate manufacturing leaders who have compelling stories to share about their successes and struggles, and you'll learn from B tob sales and marketing experts about how to apply actionable business development strategies inside your business. Let's get into the show. Welcome to another episode of the Manufacturing Executive podcast. I'm Joe Sullivan, your host and a CO founder of the Industrial Marketing Agency Gorilla Seventy six. After a year of unpredictability, here we are looking at a future where the word risk has a very different meaning to many of us, and my guest today is someone who's built his career around risk management. Van Carlson is here to talk about exactly that, and specifically for the manufacturing sector. Van Carlson is the founder and CEO at Strategic Risk Alternatives and, as over twenty five years of experience within the risk management industry. Van began his career with farmers insurance group as an agent, eventually growing his book to be among the largest in his home state of Idaho. Fan Focuses strategicals alternatives on risk management primarily and facilitates SRA to a assess and solve for the risks their clients have. Van's primary goal is to continue the upward growth of s Ra and continue to develop new products to bring to market. Van, welcome to the show. Hey, thank you for having me on you. I appreciate you taking the time for me and give our message out there to your listening audience and look forward our discussion. Yeah, me too. It should be it should be great. So I think it's a very timely topic, especially just given the the craziness of the last year or so, I guess. Before we get into it, van, can you start by just telling our listeners a little bit about how you got into this world of risk management? Yeah, so, you know, risk managements by accident, of course, like most careers, I think, and now nowadays. But yeah, so, you know, again in risk management, wasn't planning for it. So I got out of college and start looking for different jobs and owning my own business. I was always appealing to me. So in turns a running in insurance company allowed me to do that and says how I got into it. I was pretty successful. Add it grew my grew my book a business and insurance world pretty well enough to where I can start get it all my hats away to other people and hire people and so forth, and I really kind of gravitated towards business owners and really more with insulting with business owners on risk, and that's what really elevated me to think of myself more risk manager than in somebody outside the insurance and I think a lot of business owners today kind of have to have that in the background and meaning that they had either rely on a consulting person to be able to handle the risk more more effectively, because unfortunately, risk is getting more and more complicated. I think our last year proves that out to be the case. When you know you don't know how good in your church is going to be, to need it and then sometimes you find out it's maybe not everything you thought it was going to be. So that's where the consulting comes into risk management and you know I really got into what we do today. Primarily, it was a noay and really had to do more than financial. You know, wal they called the great recession, and that's we became very learing that business owners think a lot of financial risk to run the business every day and a lot of things are outside their control and when things like that happen, you know, how do you mitigate that? And I saw some people that were utilizing the tools that we offer our clients today that not only did they survived the downturn, but they've thrived in it, and that's what I thought. You know, this is what this is. This was a smart money does. This is, you know, they don't run to the stock market when everybody's buying it. They you...

...know, this is this is how you you survived your company and you think of things outside the box and you know, unfortunately a lot of people think you know this because they haven't heard of this concept of some kind of form of Risk Mitigating Ris Mitigation. Should you utilizing tax differ dollars out of the property company? Doesn't mean they should. They should always look at all the tools that are available to him and make a decision. If it's a tool for them or not, and that's what really got me going into and then, too, you know that that brought me to a consulting with clients on a whole another level, and it's really has to do with what we call unfunded risk on your balance sheets, right that you get any risk where you can transfer that to traditional terms companies and in the be risk or unfunded risk, and that's kind of where we kind of run in the between the bandwidth that and so that's unfortunately, you know, there's a lot of be be unfunded risk on their books and you know, sometimes they learned at the wrong time and unfortunately a lot of clients did last year, I think covid nineteen. I think you know, just like the financial or the great recession, when you come out on the back end of these things, you will be a better business owner from the standpoint of the experience. You know, you live from your experiences and you know, I don't think a lot of people, I don't think anybody's all this coming, obviously, but you know, going forward now, I you know, and being better prepared for these unforeseen issues gives your ability for your companies to survive, and we all work too hard to run our businesses and do all those things and then have something come in that we may have been able to control better had we just known as certain things were available to us and take advantage of and so we're excited about the future of our company. We seen a big up growth and clients understanding the concept I just mentioned, the unfunded liabilities on your books and how do you minigate that rispect more effectively? And that's utilize it really a very little known task code called a thirty one B. There's two task codes. Allows business owners to defer income into their business. One as a fore K and that's really designed for their retirement and employees retirement, and then they thirty one B, is the ability for your company to survive and related to unfunded risk. If I have a risk, it's unfunded. I can't just take a dollar and set it off to the side and say, if something this happens, I'm mean to use a dollar. Our current task code in the United States says now that's income self. Insuring risk is not a deduction, and that's when Congress introduces tax code. was really back in one thousand nine hundred and eighty six they threw to a being farmers are finding themselves self ensuring their crop insurance. Private sectors for getting out of it. For, you know, for profit insurance companies were getting out of it. And now, of course, the government is heavily involved in crop insurance. So different than they are with flood insurance or earthquake zones or even hurricane zones. Now we're there's such catastrophic advance only the government can really step in and ensure those types of risk, and so that's why the code was designed. Was Really designed for unfunded liabilities. And then, course, now you fast forward to thirty some years later, risk has gotten much more complicated. Technologies, the supply chain risks that we're at looking at today, grant coverages, I mean, I can go on on about the really the risk that traditional turns companies aren't going to take on. We call it the intangible assets of the business. Verse is the tangible. We think traditional churns companies do a very good job insuring your buildings, your your inventory, your warehouse, all those things. Those are the tangible assets of your business that typically you depreciate, where the intangible assets of your business is your intellectual property, your contracts, your reputation, in the community, all those things. That's the intangible. I don't believe traditional terns companies do a very good job at all when it comes to covering your intangible assets. And so what for your listeners want, if you I just want to make sure they understand it. You know, I most business owners understand their insurance policies aren't going to come for everything. They might see a policies as all risk and then that inch behind that word is really the exclusions that they've been putting in the policy. So you know, if your policies are getting wider, it's not because they're increasing coverages, it's really because of pretty more exclusions in the policy. And so that's still so those are...

...things that we go in there and we talked about recall. The specifically to your listeners in the manufacturing industry we have a lot of clients out there that they know their risk'Speitich when it comes to recall, when it comes to brand damage, supply chain risk is huge today. I mean it's almost the news every day right now and I think a lot of has to do with Covid nineteen of plants shutting down here for thirty days and apart not being manufactured in time, all of those things and, the course, that rippling effect throughout the supply chain. Risk can be quite detrimental and our policies are really designed to maintain in the cash flow of the business and and that's where we go in and kind of, you know, assess their risk and how do we take care of some of these things in a way that that allows you in the future to manage that risk more effectively? And what are you hearing in regard to traditional insurance premiums potentially increasing or the overall traditional insurance market hardening? And is there anything that leaders of manufacturing organizations can do about it? Yeah, there's there's gonna be a lot of things, I think. Well, first off, you can see the right in the wall. I mean the rates are definitely increasing this year. We've had a softening of the market for, I would say the probably the last ten plus years, quite honestly. You know there's going to be gaps of industries that may see rate increases because of one thing or another, but overall rates have been pretty steady. But we're seeing substantial not just double digits, but you know we're talking like fifty, sixty percent rating increases in traditional insurance companies and a lot there's a lot of reasons for it. I think of the nineteen now she's a big driver of that. There's been a compression of competition. There's just been a lot of industries it and manufacturers unfortucing one of them that you don't have a lot of insurance carriers out there like used to ten fifteen years ago. You know, everybody, everybody's kind of dissect the Pie App we know what are their risk of appetite for this industry and you know, and one might say have we've had bad written, we've had a bad situation here and we're just going to get out of it and they'll go do something else or state. You know. So I think over time, all these insurance com we start to split up the pie to where, Hey, this is what we're good at, this what we're going to do. Unfortunately, the lack of competition in any of those industries will lead to higher rates. It's just the way the world works right. So that's another reason why as well. But what we're seeing more and more of those is business owners that run a good operation, understand their lost controls, have, you know, good have good safety. Mean do all the things are supposed to as a as a protection of their business from a bric an engaged Sampoin, because nobody wants to have claims. I mean I make it very clear to clients there's never a good situation when you need to have an insurance and thank God paid the premium. Never have a claim. Good on you, because you don't want to go through that right. So, but at the same time those operations, though, we were finding is and you know, they're obviously subsidizing the ones that are the bad player. Not necessarily bad players, I shouldn't say that, but more of their operations not as as well ran as yours. But you're subsidizing those clients. It's just the way the insurance world works. So what we're seeing with those types of clients where there are ready a good operation, they have low loss ratios and notes stuff, we're actually seeing them taking out a higher first dollar loss. And what I mean by that is I think of a deducted want a car, right, if I have a five hundred duct to want to clusion car. So if I'm driving the vehicle and I slide into a light pull due to ice or whatever, I think the first five hundred dollars of damage to my vehicle, my liability insurance will fix that l like for nothing. I don't have to pay anything out to fix that light. And that's traditional insurances and that's how it works. What we're seeing in the commercial side, and order off set some of those premiums increases, the clients will and take out more risk. So now they may take on instead of a five hundred thousand or twenty five hundred ductible for collision on to say, a commercial vehicle, they may want a five or Tenzero, and that lowers their cost down, increases your risk for, you know, more out of pocket. And then, course, the first all loss on liability insurance. We're seeing a lot of that with product liability and we're also seeing a lot of the general ability insurance as well, where they'll take on a higher...

...now that US take on any doctorble. Now what that looks like is really the risk appetite to the client when they do in a willing to do a two, fifty a hundred thousand dollar risk. Our first our loss. And is there an aggregate cap? And you know, there's some things mechanisms to it. You just going to have a runaway claim and have at risk of losing your business over a simple claim. But, all that being said, it's with our program what we do, though, is we allow you to build these reserves up, take the tax deferral program that they thirty will be allows you to do, and then build up the surplus and reserves into your own your own vehicle, your own insurance company base, is what we would call it. And now you can. Now you're in a position and take on better risk. You're using last year's profits to take care of this year's exposures and that's just good risk to minigation. That's just good business. You know, I know the PPP program was big for a lot of business owners. I mean obviously that was huge last year when there was a huge slows down and most business owners were forced to shut down. But you know, that's the government stepping in and basically given out a program and giving out the money. But for my point of view, I think most business owners out there that want to run their own ship and steering own way, if there's a tools like this available to them, I think it's they owed to themselves. So to definitely starting and look into it and again, if you're having a good year, just to take it a little bit off the top, Park it off to the side on a tax deferral basis, which means you're expensive out of your operating company instead of leaving it in there, paying taxes on it and in now you now, stead of allocating a dollar for my warranty or allocating my dollar for my recall policy or my cyber or all these other gap covers, unfortunately, that business owners have today, I can take this dollar now and expense it on my operating company and I still have that dollar right the dollar still sitting in the bucket over here. Well, you know, if I got to if I have this happening, if I have to use this insurance company, it's not a good day, I promise you. But would you rather fight the fight with fifty cents are the on the dollar or the whole dollar? And that's really where that's a differentiator in a program. It gives you the ability to manage risk more effectively. I tell our clients one of the best bus best compliments we get from our clients is that he may have been with your company for a while. The one thing your company, something your product does for me that would. It just makes me sleep easier at night knowing that that money's Tuck off to the side and if we need it, we have it available. I don't have to go to a bank get them bigger line of credit. Our poll cashul from this one side of the company and, to put it, pump it into this one because we got a casual constrain over here because of a unforeseeing issue that came up. And again, you know, Congress is interested in business owner staying open. I mean payroll taxes is a big part of their tax program is payroll tax small business owners to middle market business owners and large companies. I mean these are tools that are available to you that you may be hearing about it for the first time, but just know that it's been around for over thirty years and I can promise you this big fortune power can big companies have been new unized these tools literally for decades now. And so again I can't reiterate enough that just because it and it is still new to a lot of business owners, we believe as a company that this will become a normal business practice and I think, unfortunately, covid nineteen will probably drive that home with a lot of business owners that there are all things we don't we can't buy in Schuranceport, but we still have the risk. So how do we manage that risk more effectively? And you know, unfortunately taxes is part of that. I mean, if I can avoid, if I can defer paying taxes today, and I know I have more of what's called a war chest, or it's a rainy day fund down the road, if I need it, that's great. Now, if I don't need it, I saw my business, I walk away, whatever happens. I can only shut the insurance company down. And the Nice thing with the sea corps it comes out as capital gains. Are Dividends. Now you may win in that scenario because obviously you know in s Corporal Lc you're aver even the sea corps, all those expenses of mean tax at today's rates. Down the road we don't know what's going to happen with the tax thing right. I mean it's just it's doesn't...

...matter. It gets kicked around all the time. Just it's just what it is. But certainly deferring tax is today with the idea who if, in the event you need to have your business survived, it's it can be game changer. That's that's all really good stuff. Van, you've sort of mentioned covid you know a couple times and one thing I wanted to ask you is, because you've mentioned it to me, is we were talking leading up to this conversation that the pandemic is brought to light some gaps in traditional insurance and especially for manufacturers. What options do they have to prevent this in the future? When, first of all, what are some of these gaps and what options do they have to deal with that stuff going into the future? Yeah, so I think from my point of view on that would be the supply chain risk, I think is a is a glaring issue right now. You know, in the beginning everybody thought we were going to have tremendous amount of supply chain risk, meaning the China was shutting down. You know, there was going to be this huge, you know, slack. Now it wasn't as bad as I think people saw or you know what happened, unfortunately. I think this year's where we're going to see the supply chain risk. Kid is more and it's really more in the technology. I think good examples for right now is going to have to shut down that F one hundred fifty plants because they're not getting the chips they need to continue manufacturing the number one vehicle they sell. And you know that's forward. You know what happens if you're a smaller business and you're defended on some of these different chips and manufacturings are this, you know, called a widget or whatever you want, and there's this you know, it's kind of like this rippling effect. You know what cause? One cause here, maybe unrelated today, but it doesn't catch up to you till four months later and it's still you know, the cause and effect. Happened when you maybe they think it was going to. And so I think this year will be really interesting from that. I mean to say this, but in risk management I get a little geek down on that stuff and I find it somewhat interesting. I don't know if that's a sickness or what, but it's just the cause and effects of risk is is dynamic. I mean, as weird as that set my sound a lot of your listeners. Yeah, so I think this your supply chain risk is going to be a big one. Continued, we think, called continguency, business interruption. I think as natural capacitphies increase, just because my plant is not being affected doesn't mean the highways, the road systems, the bridges and everything are shut down, that I they can't get to me and I can't get the them. We've seen that. We've seen that recently with hurricanes, and that's always been there. But the contingency business interruption, I think it's a big one. I think political disk is huge today and manufacturing, but you can deal with foreign governments, but it's always been there for him. And then the other ones would be, you know, brand damage recall. Recall, I mean, and we know recalls a challenge today a lot of insurance. You Talk About Insurance Industry, where they've really you might only have less than three companies that offer recall, a real, I would say, robust recall policies where you think, okay, I'm going to be protected here in case we have to do a recall on a product that manufactured, you know you're down with three companies, which means if you have a serious claiming, you think the other two carriage you're going to want. What Your Business if you get, if you get nonrenewed by another recall and then you're obligoy. You know, most companies are contractually obligated for their recalls today. I mean, it's not target our cost goo out recalling your product. You're doing it right, you're bearing that cost. And so again, these are these are big issues potentially for business owners of manufacturing companies that in manufactures and distrivers that matter, that they they have exposure to. And so you know, unfortunately, it's not it's not like the insurance industry tomorrow is going to go out and say, Hey, Y I guess what, guys, we're going to write a policy is going to cover everything. Don't worry about it, because here's the problem with the insurance companies. They at some point you're not going to work just for the insurance company, Right. They can't just keep charging more and more premiums and then you're going to keep buying their policies in the risk with war factor running your business goes out the door. You got of other expenses out there and of all of a sudden you got a thirty, forty, fifty percent increase on a line, and that was steady for the last ten...

...years. You know, some point the insurance companies you're not going to go to work for. You're not going to take the risk you do as a business owner. So there's a price point for them to so one way to many get that price point is by adding more exclusions. So I think one of the things you're going to see after this year's you're going to see more exclusions come into policies. There's throw some challenges on a thing called business. So if you were forced to shut down by a municipality or government, federal whatever, and you shut your plan down for two months, you you want to PPP, you got to bepp to cover your payroll and did all those things. But let's say there was other expenses right, oh, I don't know, loans on commercial buildings, all those types of things that came into play and the revenue was already strapped because it literally started happening right after the first year, which we know most business owners today, you know, at the end of the year they're trying to create expenses and lower down their tax liability and in January one they get to start wars zero. Right now now we got to go on sale, manufacture and get the products going and now we got made profit. And when you look at last year that happened. They really start happening towards the end of the first quarter. So you now you're going in the second quarter. Now you're shut down and you didn't really able to build up your cash flow reserves and now you're hoping, you know, that the banks will cooperate with you, govern programs come out, all these other things. So there's a lot business owners can do it. And again, I think this tax code allows you to do a lot of things more effectively and efficiently. That linkin loves you sleep eature at night during these times of and and here's the thing, Joe. I don't think it's going to get easier or easier to mitigate risk. I think if anything, risk is going to get ratcheted up. I think you're going to hear more and more about it. I think we're going to hear you know, these these tools will become more and more aware to business owners and I think you're going to you're going to see these types of things come into playing and, like I said, it's going to become a normal business like a formal case of normal business practice. You want to retain employees and creative retirement for yourself. We believe owning any thirty one B plan is going to be no different than a form one k plan. Now that's not to say that there's lots of rules and regulations with this program just like a one K. maybe not as complicated as for one K at time, but for one case been on the books longer, you know, but with time a thirty one B will have a clarifications. There's been some issues in the past. Want to make sure your listeners you know that are googling that task code. You know and I took make it very clear to them that you know. Unfortunately, it was hijacked by a state tax attorneys that were selling it more not from mervous minty gates to standpoint like we've been discussing, but more from a state tax play for very wealthy individuals. Obviously they have a state tax issues great tax planning. But however, when the path had became I think the law was signed on Obama and I think it became effective in the first year of the trump administration, there were some changes made and the eliminated the estate tax play that you would have an early thirty one B in and from a standpoint of a lineal descendants and the ever vocal trust and all that stuff. It became clearer and congress past that law and actually in the path act, so they eliminated at however, there's still some bad actors out there, unfortunately, still preaching this more of a tax code savings and arbitrizs and real missment, real risk mitigation, and my hope is with time those people just kind of go away and let the risk managers actually make this program effective and efficient for their business owners to recognize risk that they have and how do you manage it more effectively, and he certainly should be doing it with tax to Furul dollars versus after tax dollars. It just gives you a bigger war chest to fect to fight will van. Is there anything I didn't ask you that you'd like to add to the conversation today? No, I appreciate the questions. I mean, like I said, you know, I think surprisingly and I shouldn't be surprised by it, but there are a lot of business owners, and doesn't matter what level in the spectrum you are, gross revenant is a type of business and anything else, that aren't aware of these types of tools that are available to them, and you know I hate that. Right. I mean, these are tools and and the May in for the right client. This is a great tool and that's all. This is right. It's a tool toe...

...chest. Doesn't make sense to do it or not? Do we recognize risk that we're trying to fund somehow with after tax dollars, but wouldn't be better to use tax to Furul dollars first and foremost, which a lot of that lies within the warranty? We're seeing mean more and more all the time. But the warranty aspect of you know, in order to be competitive you got to add, you know, you get very, very generous with these warranties and as even between suppliers or if you're if you're if you're B to be guy. I mean, in order to compete out there, you got almost give the shop away to get their business. Unfortunately, and you know, because their own their own pressure on their into for the warranties. I mean we call nonmerstability warranty, which means nothing's the product side effected. The customer, the incustomer, just didn't like it and whoever they bought it from has this open ended return policy that they'll tell our clients are doing it, but they're not the ones honor in it. If you want to do business with them, you got to be the one in the back room meeting it. And so again, these are thingss that come up that you needed. You know, business owners aware IT'S A and we've to we I can't tell you anytimes it's set in meetings where they said, I've always wonder how I can manage at risk more effectively. I just didn't know this is the way you could do it. And so we've got a lot of clients like that that I literally just came from an appointment where the client was like, I didn't know I could do that, but do you not mean times I was worried about how much sleep, sleep I was losing, and they were more related to service contracts and for cuss up contractors and Labor warranties. This given your labor warranty out. Let's replace that product and you know you got to eat it right as a labor warranty. But anyway, so that's that's kind of things that I would just bring up to is like, if you're out there offering warranties, you know, how do you back those warranties up? Those you know, typically those are on front of the abilities as well, and the terms are just getting further further out and it's like Whoa, that's a that's a risk. And I told told clients all the time warrant he's only become important when unfortunate the customer. Is You having a step back in life economically, are the economies is taken a step back in general, that's when you're going to see a calls and increases of warranty claims. Well, that mean if you if that's happening to your customer, it's more likely happening you to your cashull has become a constraint. Meanwhile you're seeing now uses your warranty co up. Would it have been better in a previous years, with times are good, just to put a give a little bit of profits off to the side the park and recognize that risk into the future and and just be more efficient with your business? And again, it's a great tool and for the right client it can be a game changer for him well. Van, I really appreciate you taking the time to share your knowledge today. There were a lot of really great nuggets here and probably some things that are the listeners could take away and that they they weren't really aware of. So thanks for doing this. Hey, is my pleasure. Thank you, Joe. Yeah, so what can you tell our audience the best way to get in touch with you where they can learn more about SRA as well? Yeah, so we make it pretty simple our websites, thirty one BEATCOM. You just want to fact that in thirty one Beacom it will go right to our website and then, course, my team. I've got a team out there of professionals. We've actually had advisors all over the country that represent our products as well. So loving its information out there are I think that website, you know, does what it's supposed to do, supposed to give you information. There's plenty of videos to watch and all that kind of stuff and, in course, on there you can find this directly. I think you hit the team and get the met email wise or always your you know, our phone numbers on there and everything else. So obviously go to the website, thirty one beatcom and your listeners and certainly start there and if they have any questions or concerns, by all means reach out to this directly. Beautiful. Well, Van, what's again, thanks for doing this today and as for the rest of you, I hope to catch you on the next episode of the Manufacturing Executive. You've been listening to the manufacturing executive podcast. To ensure that you...

...never miss an episode, subscribe to the show in your favorite podcast player. If you'd like to learn more about industrial marketing and sales strategy, you'll find an ever expanding collection of articles, videos, guides and tools specifically for be tob manufacturers at gorilla seventy sixcom learn thank you so much for listening. Until next time,.

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