Hard Market Alters Loss Control Stategies

Where is my loss control consultant? Who can provide real help with loss control problems? What type of service and how much assistance can I expect from my carrier or broker? Why are my insurance costs rising when I am receiving fewer services?

I just changed to a loss-sensitive insurance program only to find that now my companys assets are on the line. Why are there no carrier loss control services available to help control this?

These are real life situations faced by many businessowners today. While we recognize that loss control services have been bartered in insurance negotiations in the past, the role of these services is changing. With the hardening of the property-casualty market over the last 18 months, loss control is quickly becoming another escalating insurance cost for businessowners.

To understand the solutions, we need to understand the obstacles. In this hard market, many service-related resources have been stretched. With tightened underwriting, loss control has an increased role, but not necessarily to the advantage of the client.

Today all insurance providers, carriers, third-party administrators and brokers have been squeezed. While they have increased overall service capabilities and products, there is generally less service delivered to the client. This limited loss control service availability is due to several factors:

Carrier consolidation over the past five years has limited consultants in number and immediate availability.

Carrier expense-control measures have reduced staff growth, further limiting consultant availability.

Typically, loss-sensitive programs budget loss control only when specified by client and broker.

The result is that many small clients have been completely left out of the loss control service plan. The largest clients with loss-sensitive programs get similarly low levels of service unless specifically budgeted. This leaves only the large middle-market getting regular loss control services.

Loss control service also has changed in focus. With hardening market conditions, there is considerable market shopping, as well as a return to more conservative underwriting. The result is an increased reliance on the loss control consultant for collecting data and conducting safety program evaluation on clients.

While many clients may see more of their loss control representatives, in actuality, much of this loss control role is reallocated to underwriting evaluation.

This raises the question: Is loss control service too inwardly focused? For example, much loss control effort is focused on the following activities:

Disaster and catastrophic loss evaluations such as property, disaster and emergency response planning, products, and large liability loss potential–especially since Sept. 11. Limited services are left to resolve the safety issues that cause daily losses.

The carrier or broker is charged with evaluating the overall safety programs of the client. Lockout-tagout (shutting off power sources to machinery), return-to-work, training, and self-inspection programs are closely reviewed as criteria for client selection. Lack of written programs is considered negative, yet many clients lack the in-house resources to develop such programs without professional assistance.

Because of the current market, clients, risk managers, safety coordinators and underwriters are addressing so many different issues they are missing one of the factors contributing most to their overall cost of risk–accident frequency and severity.

Rather than focusing on the identification of hazards and defects, loss control needs to again focus on the correction of deficiencies and previous recommendations.

The good news is there is considerable loss control talent and experience throughout the industry.

We shouldn't lose sight of our overall objectives by chasing every new market trend or loss potential. Instead, stick to basics and maintain a watch on overall programs while strategically and aggressively addressing current loss causes.

The question becomes, how can all parties involved–clients, brokers and carriers–work together more effectively so that everybody wins?

A wise man once said, “fix what we can control and worry less about what we cant.”

Terry Ries is vice president, loss control at Near North Insurance Brokerage Inc. in Chicago.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 12, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.