Assignment Six

1. Assignment Six Risk Control and Premium Auditing

2. Loss Prevention • A type of risk control that seeks to lower the frequency of losses • Loss reduction – a type of risk control that seeks to lower the severity of losses that occur • Risk control – a risk management technique that attempts to reduce loss frequency and loss severity

3. Goals of Insurer Risk Control Activities • Profit – underwriting decisions based on information – may indicate need for nurses, ergonomic specialists, engineers, chemists • Meeting customer needs – increased awareness of OSHA, Customer Products Safety Act, CERCLA, American with Disabilities Act • Impacted with liability judgments • Comply with legal requirements – minimum level required by some states • Humanitarian and social concerns – benefits society at large by preventing or lessening losses

4. Earn a Profit • Underwriting – enables underwriters to make better informed decisions and provide technical support • Marketing – often the difference between being accepted or rejected, may offer tangible advice on improving safety • Claims – may have engineering, mechanical ability above that of claims than can reduce loss • Encourage insureds to improve risk control • Provide additional revenue source • Reduces errors and omissions claims

5. Meeting Customer Needs • Pressures of legislation – OSHA, the Consumers Products Safety Act, CERCLA, Americans with Disabilities Act • Can create additional benefits • Enhance relationship with producers • Increase market share • Attract and retain higher-quality accounts • Help agents accomplish goals

6. Comply with Loyal Requirements • Some states require minimum level • Texas – workers’ compensation • Some companies charge for service excess minimum required • Duty to Society • Provide financial resources to recover from accidental losses

7. Services Provided by Insurers • Physical surveys • Risk analysis and improvement • Safety management programs

8. Conducting Physical Surveys • Evaluation of Loss exposures relating to • Fire, wind storm, water damage, burglary • Legal liability • Employee injuries • Moral hazards • Morale hazards

9. Recommendations • Written Recommendations • Conform to industry and regulatory standards • Practical • Address cost / cost benefits • Property valuations • Assist underwriters and insured • Underwriter gains better understanding • Insured understands loss exposure • Insured confident of adequate recovery after valuation

10. Risk Analysis • Coordinated safety programs • Technical risk-control information • Fire protection systems testing • Pre construction counseling

11. Types of Loss Exposures Evaluated • Test and evaluate effects of noise levels • Appraise hazards to employees from solvents, toxic metals, radioactive isotopes • Assist in design of explosion suppression systems • Evaluate products liability loss exposures • Complex loss control problems

12. Developing Programs • Complete evaluation of insured’s operation • Assist insured in establishing goals • Selecting appropriate measures • Monitoring • Consultation – ongoing periodically

13. Factors Affecting Service Levels • Line of Insurance • Commercial insured size • Potential legal liability • Unbundled services

14. Service Levels • Mostly commercial • Types of exposures – noise levels, toxic metals, explosion suppression systems and fire extinguishing systems • Potential legal liability – Nelson vs. Union Wire Rope Corporation 1994 use of disclaimers

15. Cooperation Between Risk Control & Other Functions • Underwriting • Marketing and sales • Premium auditing • Claims • producers

16. Agents & Brokers • Agent and brokers – coordinate program • Large brokers – provides service equal to that of large insurance companies • Must coordinate • Unbundled – companies and brokers

17. Premium Auditing • Obtain information with which to calculate premiums and to establish future rates • To determine the actual insurance exposure for the coverage provided and render a precise report

18. Reasons • A variable premium base • Exposure units • Payroll, gross sales, area, receipts, admissions, vehicle, mileage, values, and more • Difficulty in predicating actual number

19. Reasons (cont.) • Determining correct premium • Regulatory requirements – mostly workers’ compensation • Collect ratemaking data • Inhibiting fraud • Reinforce confidence of insureds

20. Process • Voluntary vs. Field Audits • Planning • Reviewing operations • Determining employment relationship • Finding and evaluating books and records • Auditing the books and records • Analyzing and verifying premium – related data • Reporting findings

21. Importance of Accurate Audits • To insured • To insurer • Financial position • Customer retention • Goodwill • Efficiency • Collections • Insurance rates

22. Premium Audit & Other Functions • Underwriting – proper classifications and price • Account – desirability reflects management • Marketing – may be only person from insurance company seen • Claims – verify employment • Risk control