The Balancing Act: When Risk & Operations Collide

Zak Fagiano is the Head of Global Risk and Insurance at Wayfair, where he leads the company’s global insurance program, captive strategy, and claims teams. With expertise spanning contractual risk transfer, claims management, and operational alignment, Zak plays a key role in enabling innovation while managing exposure. He is known for fostering pragmatic, business-focused risk strategies that support growth without compromising protection or compliance.

In their traditional roles, business operations and risk management frequently clash. Take, for example, operations wanting to pilot new robotic machinery in a warehouse. From an operations standpoint, this makes sense—the teams will be able to process orders faster, leading to better optimization and customer satisfaction. But then, risk management steps in and progress on the pilot grinds to a halt while the potential risks are analyzed and addressed. Suddenly, a pilot that excited everyone from the warehouse workers to the executives becomes a burden, while countless questions are posed and information is sent to insurance underwriters.

It is a classic example of departmental incongruency that often creates expensive delays and derails progress. This raises the question of how to adequately balance operational and business goals with the avoidance of risk, or at least a tolerable level of risk. There are several strategies that can be employed, but the first step is to ensure the potential risk does not outweigh the opportunity.

Take the above robotics pilot example: if it’s supposed to reduce manhours and increase operational efficiency while delivering a better customer experience, this can be quantified using the cost of labor and customer retention. Weigh that against the realistic cost of risk— whether it's workplace injuries related to mishandling the new machinery, possible property loss, downtime due to programming issues, or the increased premiums associated with having the machinery in a warehouse. If the return on investment of the pilot outweighs these costs, it’s clear that it makes operational sense to take on the risk. If it doesn’t, then it’s up to risk management to identify areas where the risk can be mitigated and transferred, rather than automatically shutting the pilot down.

The most basic form of risk transfer comes in the form of insurance. The problem with just relying on insurance to offset your risk is twofold: firstly, insurance underwriting is notoriously conservative and the cost to get the risk accepted under your policy may be too high or may come with many requirements that make the pilot less viable. In the warehouse example, the business is looking to use robotics—an emerging technology that always gives underwriters pause. Second, insurance is best left to catastrophic risk, and the reality is that most of the cost associated with a risk is in the day-to-day incidents and claims.

A more pragmatic approach is to look to transfer the risk via contractual indemnity. In the warehouse pilot example, there are a few ways that this can be done to lessen the risk load on the business. First, any property loss attributed to the robotics can be made the responsibility of the provider, assuming the loss is not due to your own employees’ negligence. Second, requiring training from the provider to minimize injury can help offset workers’ compensation claims. Third, requiring the provider to list you as additional insured and provide a waiver of subrogation can give the business a financial avenue to pursue in the event of a third-party suit.

Internally, there are ways to ensure the business unit pushing for the pilot is made to prioritize risk mitigation. You can move forward with the pilot, but have claims arise due to negligent handling or workplace injuries charged against that business unit’s budget. By forcing them to have skin in the game, they will prioritize risk mitigation as much as operational efficiency. If the people directly involved in the implementation of robotics know they will have to pay for claims, they will do everything they can to ensure claims don’t happen.

While these are just a few strategies, they all come down to the same conclusion: risk management needs to be an enabling partner rather than a roadblock. Too often, the risk team jumps to say “no” or transfer the risk via costly insurance policies rather than looking to more creative solutions that can not only lower exposure, but also cost. At the end of the day, the business needs to make choices that come with risk in order to grow and prosper. It is our job as risk managers to ensure they can do so while protecting against, and preparing for, the inevitable losses that will come.