The Elements Of A Risk Management Program - Part I of III

John A. Dirkse
Account Executive
Frank B. Hall & Co. of Wisconsin

Effective risk management is a critical issue that must be addressed by any organization in order to control the costs related to loss. Not only will it immediately have impact on insurance costs, it will show results in controlling costs relating to personnel, loss of use or extra expenses as a result of a change in operations. The Wisconsin County Mutual was founded on the concept of Wisconsin Counties working together to help control, not only the cost of insurance, but all costs directly relating to the management and prevention of loss.

This article is the third in a series dealing with the topic of risk management and how application of the various techniques will greatly enhance the success of any insurance program.

The risk control measures we will briefly discuss are: loss control, avoidance, separation, combination and various methods of risk transfer.

In the last article, the topic of loss control was briefly discussed and will be continued in this article.

Loss Control

As presented, loss control measures counter risk by lowering the likelihood that an occurrence will take place or by reducing the severity should a loss occur.

Loss control measures may be viewed in various ways:

1. according to the causes of occurrences,
2. whether they are prevention or reduction methods,
3. by location of areas you wish to affect change,

and

4. by their timing.

Classification by Cause of Accident

Loss control techniques are commonly classified by their intended result. This approach may be classified as either, engineering, human relations or both in combination.

Engineering and human relations approaches

The engineering approach looks to mechanical or physical causes of accidents. Examples of this would be, poorly designed highway intersections or automobiles, unguarded machinery, improper or incorrect procedures.

While the engineering approach is essential to all loss prevention programs, consideration of human errors or failures are also very important. This is especially true in casualty oriented losses, where human errors or failures may cause accidents. For example, unsafe acts of persons (operating a vehicle or equipment at unsafe speeds, having little regard for conditions present or just plain carelessness) are all major causes of accidents resulting in injury or property damage.

With the engineering approach, it is often easy to formulate a plan of action to reduce the frequency and severity to loss, by merely correcting the physical properties that contributed to the loss.

The human relations approach is usually more difficult to deal with, as it involves less tangible elements, such as personalities, tradition or psychological problems. In recent years, there has been more emphasis placed on the human relations side of the loss control program. As a result, casualty loss control programs have centered their attention on the aspects of personnel and procedures.

Loss Prevention and Reduction Methods

Loss Prevention programs seek to prevent the loss from occurring by elimination of the chance of loss. Loss reduction programs on the other hand, seek to reduce the potential severity of the loss. A combination program can utilize both techniques.

Loss prevention programs vary by the type of losses the program wishes to prevent. For example, the chance of injury through administering vaccines by public health nurses, may be eliminated by proper storage, handling, inventory documentation and training.

Loss reduction programs may also be called minimization or salvage procedures. A current approach is often termed, disaster planning. This pre-planned approach to activities during or after a loss, work to reduce the severity of loss. An example would be: immediate first aid for persons injured on the premises or properly posted evacuation procedures for any insured premises in the event of a fire or natural disaster.

Location

Another classification of risk control is the location of the condition that is to be affected or changed. This process may identify changes in highway intersection arrangements or speed limits present on certain stretches of highway that may present a danger.

Changes in the conditions present in the above example, such as increased law enforcement, changes in design or the display of different signs may prevent or reduce the likelihood or severity of loss.

Timing

Timing, the last classification of risk control measures, addresses when the appropriate procedure is to be used before, during or after the loss.

Another determination concerning timing recognizes planning, maintenance and response to conditions affecting the prevention, frequency or severity of loss. Planning involves recognition of circumstances that may present themselves before, for example, one purchases a product or service. Maintenance refers to monitoring and changing conditions or procedures that follow what was determined in the planning stage. Finally, response refers to actions or programs that go into effect in response to a loss or emergency.

Risk management is unique to YOUR operation. Due to the limitations of space, this article can not begin to address all of the considerations necessary for developing a risk management program. If this article has raised any questions or you would like further information, please contact me or discuss them with your agent.