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June 25, 2011

The Total Cost Of Your Insurance Program, Part 1

Summary:

Risk Control can be defined as a multidisciplinary approach in which human, engineering, and risk management practices are employed to reduce the frequency or severity of losses. From an insurance company perspective, this would apply to real or potential losses associated with coverage(s) or covered perils provided for in the insurance contract or insurance policy.

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This is the first article in a five-part series on understanding the total cost of your insurance program. Subsequent articles in this series can be found here: Part 2, Part 3, Part 4, Part 5.Introduction
Risk Control can be defined as a multidisciplinary approach in which human, engineering, and risk management practices are employed to reduce the frequency or severity of losses. From an insurance company perspective, this would apply to real or potential losses associated with coverage(s) or covered perils provided for in the insurance contract or insurance policy.

The Carrier Risk Control Perspective
As we take a look at this topic, let’s start off by identifying “What Insurance Related Risk Control Services Are.” They can be summed up for the most part in the definition of a service team. The purpose of the Service Team is to evaluate risk quality and assess our ability to be successful in underwriting, servicing, and retaining an account. What may not be so obvious in this statement is the business stance of the insurance carrier. We need to do whatever it is that we do in a way that yields a profit for our company with an interest of servicing and retaining accounts that can help us achieve that.

This speaks to efficiency, efficacy, and a focus on what types of services or activities drive profitability for carriers. Efficiency because we don’t have unlimited resources to throw at an account. Efficacy because we need to be able to produce a desired result, and we need to know how to do that in a focused manner that achieves the desired results while sanguinely endearing the client in a mutually beneficial business relationship.

Now that the business perspective is clear, it is important that we understand the roles, goals and procedures in play when these types of insurance services are involved. Oftentimes, due to the varying player’s actions (different carriers) and the individuals (risk control personnel) involved, these parameters can become blurry. What we will achieve from taking a look at these areas is clarity of roles, perspicuity of expectations, and as even a playing field as possible given an environment where some players are trying hard to differentiate themselves in the marketplace. Let’s take a look at the function of the three major players on the insurance carrier side of the equation.

Role clarity for the three major functions of an insurance carrier:

  • The Risk Control Role: Develop accurate account information (understand what we are insuring). Plan, organize, and lead LC service delivery to achieve significant account-level loss reduction and customer satisfaction.
  • The Underwriting Role: Solicit, select and manage profitable business.
  • The Claim Role: Provide professional claim handling within the spirit and the letter of the law, in a fashion that treats the policyholder and claimant fairly and does not create legal liability for the company, our insured’s and agencies while achieving increased profitability through effective cost containment strategies and programs as well as enhancing the image and value added capabilities of the company.

Taking this a bit further, let’s clarify the goals for Risk Control — what are we trying to accomplish:

  • Loss Management is a better term than the traditional Loss Control term, probably even better than Risk Control, but it doesn’t have the same level of correspondence to the function. Thus, while Risk Control is winning out regarding the name game, Loss Management is a better describer of the purpose at hand because our primary goal is to reduce; eliminate and or mitigate losses.
  • Providing meaningful services that our customers desire and which achieve good customer retention is also important, and can compete with the primary goal in many ways. In instances where we can seemingly have no real affect on a customer’s loss performance (they are having zero losses), risk control can be a significant ambassador to the insurance client. In this regard, let me point out some very interesting customer service statistics before we proceed further, to make this point clear (the point being, there is more to risk control servicing than loss management).Some customer service statistics:
    1. A typical business hears from only 4% of its dissatisfied customers. The other 96% just go quietly away and 9% will never come back. That represents a serious financial loss for companies whose people don’t know how to treat customers, and a tremendous gain to those that do.
    2. A survey on “why customers quit” found the following:
      3% move away
      5% develop other business relationships
      9% leave for competitive reasons
      14% are dissatisfied with the product
      68% quit because of the perceived attitude of indifference toward the customer by an owner, manager, or employee
    3. A typical dissatisfied customer will tell 8 to 10 people about his problem. One in 5 will tell 20. It takes 12 positive service experiences to make up for one negative incident.
    4. Seven out of 10 complaining customers will do business with you again if you resolve the complaint in their favor. If you resolve it on the spot, 95% will do business with you again. On average, a satisfied customer will tell 5 people about the problem and how it was satisfactorily resolved.
    5. The average business spends 6 times more effort to attract new customers than it does to keep old ones. Yet customer loyalty is, in most cases, worth 10 times the price of a single purchase.
    6. Businesses that have low service quality average only 1% return on sales and lose market share at the rate of 2% per year. Businesses with high service quality average a 15% return on sales, gain market share at the rate of 6% per year, and charge significantly higher prices.

    Remember, when it comes to customer service, it’s the customer’s perception that really counts, regardless of how well you think you’re doing your job.

Related Articles
The Total Cost Of Your Insurance Program, Part 2
The Total Cost Of Your Insurance Program, Part 3
The Total Cost Of Your Insurance Program, Part 4
The Total Cost Of Your Insurance Program, Part 5

Authors
Dirk Duchsherer collaborated with Jim Newberry (CHST, Bsc Safety Management) in writing this article. Jim is the AVP and Risk Control Manager for Island Insurance Company, LLC in Honolulu, Hawaii.

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About the Author

Dirk Duchscherer confers with CEO’s, Risk Managers, Production Supervisors, and Facility Directors to identify problems and suggest cost effective solutions. He reviews compliance with such agencies as CALOSHA, NFPA, ANSI, ASTM, and DOT and provides clients with technical information on standards, codes, and regulations.

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