Is Loss Control a Lost Art?
Insurance Experts' Forum, January 31, 2012
This issue’s Asked & Answered department (p. 26 of our January/February issue) got me thinking about the industry’s efforts at mitigating loss.
It seems that all roads in insurance point to improving how risk is managed. Yet roadblocks continue to impact risk management success. As an internal factor of risk management, loss control exists to best respond to a host of known and unknown external factors that impact risk.
Loss control has become a core element of doing business, and insurers, depending on the type of coverage they offer (personal or commercial lines), have gone to elaborate lengths to obtain such data; from setting up structures to test equipment, alarms, combustibles, to crash-testing vehicles, studying road conditions, driving habits and more.
In commercial lines, the onus is on the insurer to help their clients incorporate risk management awareness and attitudes into all aspects of the business.
For example, companies such as the Hanover Insurance Group have established separate online subsites that offer specific online loss control information to their high-tech manufacturing, telecommunications, information technology, tech services and life sciences clients that include information to help them reduce loss exposures and improve their management controls.
But these types of best practice efforts don’t guarantee that commercial lines’ clients visit the site and educate themselves. And can we obtain guarantees from the client that a formal loss control or risk management program has been implemented, and a governance program that monitors its success?
The complexities of commercial lines’ loss control efforts add to the mix, where a host of different factors must be taken into account based on type of business and related exposures. Since the degree of exposure for different types of business for a given classification can vary significantly, many insurers follow Best's Hazard Index, which identifies the relative degree of risk for the insurance coverages in each classification.
Yet the interdependency of underwriting, claims and loss prevention factors forward as commercial clients try to strike a balance between premium savings and their own claims costs that result from inadequate coverages.
And to date, it seems that insurers haven’t struck that balance, either. Commercial insurance prices continue to rise, increasing an aggregate 2% during the third quarter of 2011 – the second straight quarter when all standard commercial lines showed an uptick in pricing, according to Towers Watson’s most recent Commercial Lines Pricing Survey. The upshot here is that the increases are not enough to keep up with reported claim cost inflation levels.
Even if you take into account the capitalist nature of this business, which tends to promote competitive advantage to a fault, holding clients’ contractually accountable for known risk management prevention efforts is just logical. Isn’t it?
Pat Speer is editor-in-cheif of Insurance Networking News.
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