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June 25, 2011

The Total Cost of Your Insurance Program, Part 3

Summary:

Now more than ever, customers need to understand their Total Cost of Risk (TCOR). In C.R. "Rob" Ekern’s book "Consultative Brokerage: A Value Strategy," the TCOR model states four crucial cost areas: Insurance Premiums, Loss Costs (direct and indirect), Administrative Costs, and Premium Taxes and Fees. By adopting the TCOR model, clients can measure the effectiveness of their entire safety and risk management programs and not just the premium costs. Research has shown for every $1 paid out in direct costs, an additional $1-4 of indirect loss costs are paid by the client.

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This is the third article in a five-part series on understanding the total cost of your insurance program. Preceding and subsequent articles in this series can be found here: Part 1, Part 2, Part 4, Part 5.

The Broker Risk Control Perspective
So your insurance carrier’s risk control consultant and insurance broker are providing you with all the safety and loss control assistance they promised they would prior to renewal to help eliminate and minimize your alarming insurance costs. Therefore, why bother with the broker risk control services? Not so fast!

Historically, carrier risk control services were driven by premium size, class of business, and/or loss frequency/severity — usually directed by the underwriting department. However, in today’s unstable and downsizing economy, all three entities — customer, insurer, and broker are all expected to do more with less.

Now more than ever, customers need to understand their Total Cost of Risk (TCOR). In C.R. “Rob” Ekern’s book “Consultative Brokerage: A Value Strategy,” the TCOR model states four crucial cost areas: Insurance Premiums, Loss Costs (direct and indirect), Administrative Costs, and Premium Taxes and Fees. By adopting the TCOR model, clients can measure the effectiveness of their entire safety and risk management programs and not just the premium costs. Research has shown for every $1 paid out in direct costs, an additional $1-4 of indirect loss costs are paid by the client.

The Triangle of Risk Control Services presented during the American Society of Safety Engineers (ASSE’s) Fall 2008 Risk Control Symposium outlined a typical “triangle” which illustrates the relationships between the client/risk manager-broker-carrier. Specifically, the broker risk control consultant’s needs/role include:

  • New prospects/accounts
  • Customer retention and satisfaction
  • Long-term and healthy carrier partnerships
  • Assisting existing clients in lowering TCOR
  • Ongoing growth and knowledge to understand clients’ exposures and needs

The key to a successful “triangle” for both the client/risk manager and carrier/broker is a long-term risk improvement plan including: regular site visits and assessments, historical loss analysis, understanding client “culture” and ability to change, and committed partnership with carrier and broker risk control staffs.

In his book “The Wedge: How to Stop Selling and Start Winning” Author Randy Schwantz says (that to draw in new clients) you need to create a wedge between the incumbent broker and your prospect. Your goal is to get the existing broker fired! In other words, what can you do as the new broker that the incumbent is not doing for you to earn the new business?

For a broker’s current “book of business,” Randy states that you need to protect your top 20 clients. One of your tools needs to include a Service Time Line Report (a “sample” is included later in this article).

In 2008, InterWest Insurance Services adopted and implemented the Wedge sales platform for obtaining/retaining its prospects/clients company-wide. One of the key “wedge” components is InterWest’s Risk Control Department.

To help achieve InterWest’s targeted middle market, accounts generating at least $10,000 for Property and Casualty (P & C) and between $4,000-$20,000+ for workers compensation (WC) annually in revenue qualify for risk control service.

Related Articles
The Total Cost Of Your Insurance Program, Part 1
The Total Cost Of Your Insurance Program, Part 2
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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