GRAND RAPIDS — Insurance policies are a means to finance a company’s coverage for exposure to risks.
A manufacturing firm, for example, must insure its building against fire and storm damage, insure its liability for potential injury on the premises and insure employees for work-related injuries. If the firm has a fleet of trucks or autos, it will need to insure that as well.
That’s typically the extent to which most insurance companies operate, said John Rogers, an account executive with Universal Insurance Services in Grand Rapids. He said his company takes it a step farther and offers clients help in reducing or eliminating risks for which they buy insurance policies.
UIS has a risk engineer and four claims professionals on staff that do pre- and post-loss management. The risk engineer conducts a pre-loss assessment that evaluates where the losses are coming from and provides a solution for reducing the exposure to risks that can generate claims.
“It’s all done in the vision of reducing your exposure to loss,” Rogers explained. “If we can reduce the exposure to loss it will help reduce your total cost of risk, and part of that total cost of risk is your insurance premiums.”
Insurance carriers try to predict where a company might have losses by looking at its loss history. If losses were averaging, say, $100,000 for five years, the insurance company can predict about the same for the upcoming year.
If ergonomic issues, for example, have represented 60 to 80 percent of the client’s losses over the years, then focusing on those issues and reducing the ergonomics claims is where the biggest bang for the buck can be had, he said.
“If we can help reduce those losses to $60,000 or $80,000 on average per year then we’ve helped reduce the financial part.”
Post-loss management involves actual claims against the company. Claims people are responsible for reserving the dollars assigned by the insurance company to a claim and for making sure the dollar amount is accurate and not excessive, Rogers said.
Even if a business doesn’t have an adverse loss history, insurers might view its exposures as too great. Furthermore, exposures constantly change. Factors such as mergers and acquisitions, changing employment rates, technological advances and the constant push for businesses to become more efficient all create new exposures.
“The insurance industry is very cyclical and we are entering into what a lot of people would consider to be a hard market — a market where carriers are contracting, they’re not nearly as aggressive in their pricing and they want big increases. Their underwriting guidelines are changing.”
A particular business might be a perfectly good account, but the insurance companies — like Kemper, Hartford, Citizens, Travelers, CNA and Amerisure — actually have re-insurers that participate in covering clients and the re-insurers dictate to the Hartfords, Travelers and the rest of them what types of business they can go after, Rogers said.
Many large corporations have their own risk managers on staff. Some independent firms also hire out professional risk managers. Risk managers might come into play after a business has had an OSHA inspection to determine how the business can comply with the law in the most cost effective way.
“The other side of it is the loss prevention, which is people going in on behalf of the insurance company to assess the same things the risk manager does but from the insurance company’s perspective for underwriting purposes,” explained Todd White, vice president of Great Lakes Loss Control of Grandville.
From the perspective of White’s company, the job is to look at how loss can be prevented, regardless of the cost. They leave it to the insurance companies to work out the cost details.
“They’re similar in that they’re both looking at safety; it’s just that the risk manager is doing it on a cost-effective basis for a company, whereas companies like ours are doing it on a loss prevention basis on behalf of an insurance company,” White said.
Great Lakes Loss Control primarily serves insurance companies, but occasionally businesses will hire the firm for those services.
White’s firm works with a variety of businesses, or as he likes to put it, any commercial business that can get insurance — from Aunt Emma’s dress shop to the General Motors manufacturing plant.
The majority of what his company does is “Main Street America” — the restaurants, the bars, the body shops, the small manufacturing firms and the retail stores that tend to comprise the majority of local business in most any town.
As White pointed out, insurance is divided into several categories: loss control, audit, actuarial and claims. Insurance companies collect data from all categories.
“If you ran a flow chart, audit and loss control would be at the bottom. Actuarials are basically statisticians who develop their numbers based on what claims come in for certain types of business. That would be the intermediate step on a flow chart.
“On top of the flow chart would be the underwriter, who ultimately makes the decision as to whether the insurance company wants to insure an account or not, and if so, how much they want to charge for the premium.”
In the audit, accountants look at the books, payroll, sales and other related data because different premiums are based on different kinds of factors. In effect, the audit is similar to a loss control assessment but from a strictly numerical perspective based on payroll or sales, he said.
Loss prevention, on the other hand, involves looking at machinery, equipment and processes being used on site, as well as the controls that are in place for the processes based on the insurance coverage.
The exposure is much less if there is an office in the building than if there is a restaurant or body shop in the building. So even though it’s the same piece of property, the level of risk for loss can be different, he explained. The goal is to assess the exposure to the coverage based on the building’s occupancy.
“With insurance, as with any other business, if they can reduce the expense, then, conversely, they can either make a bigger profit or lower the premiums on the other end,” White observed.
Most insurance companies are willing to work with clients, he noted. A business could have an unfavorable loss prevention report, but if they clean up a few things, they may still be insurable. The insurance company may just choose to insure the business at a higher premium than normal.
“It’s kind of like the person who has too many speeding tickets. They can still get insurance, but it’s going to cost them $5,000 a year as opposed to $1,000.”
If the insured is willing to work with the insurance company, quite possibly the premiums can change, but it’s not guaranteed. A lot of it is up to the insured and how willing they are to cooperate with the insurance company, he said.
“The insurance companies aren’t out to be the bully on the block, contrary to what a lot of people think. They’re out there to help people. They don’t want to pay a claim any more than somebody wants to have their house burn down.”