Adjuster risk management tools – Part 2: Identifying exposures
One theory is that risks fall into three categories: physical, moral and morale.
Last month we discussed the principles of risk management and why it is important for adjusters and adjusting firms or departments to establish systems of risk control and financing. Some loss is inevitable; risk has cost even when no actual loss occurs. We spend money on various ways to prevent or pay for loss, and despite that expenditure, no loss may occur. However, unanticipated loss could far exceed what we might have anticipated.
For example, a warehouse full of stock is exposed to various kinds of loss: fire, flood, theft, worker injuries, almost anything one could imagine. The owner decides to install a fire protection system that sounds an alarm and has sprinklers if there is a fire. Such systems are expensive. If there never is a fire, was the investment in the system wasted money? What if the sprinkler system leaks and damages stock? What if the alarm malfunctions and employees leave the building, losing an hour’s worth of work while the fire department checks? What if the fire department fines the company $1000 for a false report?
An “exposure” is anything to or from which loss may occur, those “pickles and jams” that are common to any business. You might become unemployed, or your family might have illnesses. You might be arrested for an auto accident, or your home or auto might be damaged. Everyone faces these exposures. For a business, multiply the exposures by the number of employees, clients and companies with which you work. What exposures do you, as an adjuster or adjusting firm have?
Consider your surroundings
One theory is that risks fall into three categories: physical, moral and morale. While far too simplistic for sound risk management, in a broad way it reflects the truth of exposures. Physical exposures involve items that can be damaged, lost, broken or made useless such as a person, structure or personal property. These are subject to loss from sources such as fire, storms, theft, litigation, even obsolescence or wear and tear.
Moral exposures are a bit trickier. There is the natural tendency to make life easier. For an adjuster with a difficult claim, “giving in” and paying an unfair demand is an exposure. It violates the principle of the state’s unfair claims settlement practices act requiring prompt, fair and equitable settlement of claims where liability is reasonably clear. However, those words are subjective. Fair and equitable to whom? How fast is “prompt”? Who decides when “liability” is “reasonably clear”? This sort of questioning makes every decision a potential exposure for an adjuster.
We are hearing more about cybercrime and the exposures created when data systems are attacked and manipulated by unknown or unidentified parties. What will such thieves do with our data? What about other types of criminal activity? Are you stealing from your boss by spending an hour or so on Facebook, Twitter or checking you e-mail?
Morale exposures are even more subtle. Are your assignments “just a job”? Do you go home and leave important matters on your desk? Perhaps you could not possibly care less what happens in your case files, but your morale affects your co-workers.
There are many exposures to loss. In the coming months, we will look at managing risks by recognizing and correcting hazards, and look at the perils those hazards might create.
Ken Brownlee, CPCU, (kenbrownlee@msn.com) is a former adjuster and risk manager based in Atlanta, Ga. He now authors and edits claims-adjusting textbooks. Opinions expressed are the author’s own.