 Risk Rehabilitation Through Loss Control and Prevention By Robert L. Wasserman, CPCU |
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A nice thing about having sat behind both underwriting and loss control desks is that one gains an appreciation not only of the ways the two disciplines are interrelated, but also the practical limitations of each and, happily, the very effective synergy possible when the two are effectively combined.
Many a risk is declined because the underwriter doesn't perceive that it can be improved to the point at which it may produce a profit for the company; and it IS a matter of perception...for one underwriter may legitimately disagree with another whether a certain loss control approach will produce the desired results. I submit that lots of potentially good business is "canned" by underwriters who aren't sufficiently exploring the remedial possibilities that loss control and prevention activities offer.
As an example, a broker friend of mine has a program on optical stores underwritten by a large national carrier. Loss experience over the past three years has been acceptable except for the crime coverage. It seems that the new "designer" eyeglass frames are worth plenty and have become the target of burglars and "smash-and-grab" thieves. Not only have break-ins been on the increase, but brazen daytime stick-ups and showcase robberies have also risen dramatically in certain areas. My friend tells me that the carrier is considering the following renewal options: 1) a high deductible on crime losses, 2) a dramatic premium increase, 3) nonrenewal of the entire account. Amazingly, the underwriter isn't recommending any crime prevention or remediation activities in conjunction with, or, instead of, options 1) and 2).
This is unfortunate for a couple of reasons. First, the insured and, ultimately society, will not be the beneficiaries of the technical knowledge and expertise possessed by the insurance industry in preventing and ameliorating incidents that cause loss of property and, in this case, possible harm to life and limb as well. Second, my friend, lacking another market for this account, will probably lose the substantial income it generated and suffer the consequences that befall a small business under such circumstances.
I've advised my friend that this account can not only be salvaged, but possibly made profitable in the crime area under the following conditions: 1) the insured has to be willing to implement reasonable loss prevention and control safeguards and procedures; 2) such a plan has to be presented to the insurer in a logical, professional and convincing manner; 3) the plan must include the participation and commitment of all three parties in order to succeed.
Of course, we must realize that other factors can influence the situation, not the least of which are market conditions. Why would an insured want to get involved in the time and expense of implementing a program of crime prevention if some other (hungry) carrier will write his business at a comparable or lesser premium without it? Obviously, a good question...but there are some good answers.
One might be, "Because sooner or later, given your continued poor experience, you're gonna run out of willing insurers so you might as well do it now when it'll be easier, rather than down the road, when it'll be difficult or impossible." Or, "If you go for this idea, maybe next year or the year after, we can get some pretty good discounts from the company if things on the loss side work out the way we think they will." Or, "Even if we can't get the discounts, given the improvement in the loss experience, some other carrier may gladly do so." Finally, "Because it's the right thing to do for your employees' welfare and that of their families (you might also interject at this point, the damaging effect a severe workers' compensation claim would have on that line of business!)."
In other words, a "sales job" has to be done on the carrier and the insured so that both realize the potential advantages, both economic and non-economic, of an effective loss-reduction program. Sometimes, a creative underwriter will take the initiative in loss prevention. So much the better.
I'm currently working with my friend on this situation and will provide a status report, including some practical approaches to treating this problem, in our next article during March. Please stay tuned!
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[Robert L. Wasserman, CPCU, is president of TIS and regularly contributes articles to TIS EXPRESS].
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