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| Protecting Business, Property, and People |
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To be successful in business you need a competitive edge. A basic knowledge of insurance and risk management combined with knowing how to control insurance costs can give you that edge. This manual is designed to give you information, resources, and tools needed to help you effectively control your insurance costs by controlling risks and minimizing losses.
The FCCI Insurance Group Risk Control Manual provides you with many easy-to-use tools, information, and resources in key insurance areas. The manual is designed help you develop and implement an effective risk control program, one that will meet your specific business needs and to help you protect business, property, and people. If you need further assistance, your FCCI Loss Control Representative is ready to help and may be reached at his/her home office number or by calling (800) 226-3224.
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Management Role 
Commercial insurance is one of the largest controllable overhead costs for businesses. Your profit margin can be greatly affected by the type of coverages you have and how well you manage risk and minimize loss. Some risks that can have adverse effects upon your business include:
• New building codes resulting in increased costs to rebuild property damaged by fire or other
loss causes
• Income loss when fire or hurricane interrupts your business
• Theft of property of others in your care, custody or control
• Employee theft of company funds and property
• Employee injury and illness
• Vehicle accidents by employees who operate company vehicles or personal vehicles for
company business
• Product injury suits
• Wrongful discharge of an employee
• Injuries to temporary employees
To properly control these risks and minimize potential adverse impact on your business, your management team and your insurance agent may want to establish Risk Management Goals (Appendix A1).
When establishing goals always keep in mind that the key to achieving goals begins and ends with management leadership and support.
Clear and consistent management leadership and support is demonstrated by:
• Establishing and effectively communicating a clear and consistent safety policy
• Establishing specific, measurable, achievable, relevant, and trackable (i.e. SMART)
accident prevention and risk improvement goals.
• Assigning a safety coordinator or manager who is accountable to top management and
responsible for achieving goals
• Holding middle management and supervisors accountable for results in their respective
divisions, departments and units via performance appraisals and meaningful impact on
their total compensation
• Establishing a specific budget for safety and health programs
• Developing and fostering a safety culture where every suggestion is considered worthy
of consideration
• Monitoring results throughout the year and taking action as needed
Risk Management Techniques
When considering which risk management goals are most important to protect business, property, and people, some of the options you have are represented by the risk management acronym "TRAC," which stands for Transfer, Retention, Avoidance, and Control:
Risk Transfer: The most common
risk transfer technique is simply
purchasing insurance and transferring
financial risk to your insurance
company. Another commonly used Risk
Transfer technique is including
hold-harmless agreements in contracts
with subcontractors. Many states have
laws that limit their use, particularly
in construction agreements. Since a
hold-harmless agreement is ultimately
only as good as the financial ability of
the company that holds you harmless, you
might also consider being named as an
additional insured on your
subcontractor's general liability
policy. The rationale here is that as an
additional insured you have the
protection of the subcontractor's policy
available to improve the likelihood that
you will be indemnified for a loss
arising out of the work the
subcontractor is doing for you.
Risk Retention: Retention means retaining part or all of the financial risk yourself. For example, you may decide that the risk of certain types of insurable loss are so unlikely or so small that you do not need to purchase insurance to cover them. In other situations large deductibles or something similar called self-insured retentions (SIRs) might be a better option for you. Large deductibles or SIRs might be best when you need coverage for a large loss that could put you out of business but due to the significantly lower premium, you would be willing to absorb part of the loss yourself. How much loss you are willing to absorb or retain yourself will be determined by your personal tolerance for accepting risk, your financial capacity to take risk, and the premium reduction available to you. Finally, no matter how good your insurance program is there are always some financial risks that cannot be covered by insurance and as such are automatically retained.
Risk Avoidance: Perhaps the most common risk avoidance technique is to subcontract out hazardous processes or operations (i.e. subcontract out paint spraying ), eliminating use of hazardous chemicals (i.e. start using a non-flammable solvent instead of a flammable solvent) adopting alternative manufacturing techniques (i.e. use computer controlled production machinery instead of machines operated by people), etc. Another example might be reducing your product liability exposure by eliminating certain hazardous products from your product line.
Risk Control: There are two primary approaches to risk control. The best approach is to prevent a loss from happening in the first place. Using safety goggles when grinding to prevent eye injuries is a good example of loss prevention. Another example is training your employees to lift properly to prevent low back injuries.
The second approach to risk control involves loss reduction. This means using a technique that will not necessarily prevent a loss but which will reduce the severity. Installing a fire sprinkler system is a good example. This will not prevent a fire but it will control it and reduce the amount of loss. Effective Claims Management techniques, as described later, are another good example of a loss reduction technique (i.e. will not prevent a financial loss but can reduce it substantially).
Some techniques can fall into either category. A good example is the control of your subcontractor liability exposure. If anyone performs work for you or on your behalf, you have a subcontractor liability exposure. This means that if the person you contract with causes harm to the person or property of others while doing that work, you may be financially at risk. How much you are at risk depends on whether you select the right subcontractors in the first place, properly assign and delegate their responsibilities, and whether their insurance is adequate to cover damages they are liable for. The bottom line - if you do not have a program in place to verify that the subcontractor has maintained adequate general liability (GL) limits, then your general liability insurance may have to respond to all or a portion of the legal/claim settlement.
For workers' compensation, if one of the subcontractor's employees is injured and the subcontractor has no coverage, you may be liable. Even in situations where there has been no loss, you will likely find yourself paying higher general liability and/or workers' compensation insurance premium if you cannot demonstrate to your insurance carrier that your subcontractors are adequately insured.
It is also important that you understand
the limitations of a certificate of
insurance. For starters, you need to
know that the certificate of insurance
itself confers no rights to you. It is
strictly for information purposes.
Most risk management programs use at least a few, if not all, of the "TRAC" techniques described. We urge that you confer with your agent and legal counsel to determine which techniques will work best for you.
Policy, Rules, and Procedures
A company policy is an attempt to put into words the essence of what a company stands for. It communicates to others how a company will operate in the course of achieving its mission. It serves as the basis of every rule, procedure, and practice that the company puts in writing. When employees are faced with situations that have no written rule or procedure to apply, they can let company policy guide them. The most successful companies have been described as companies that have "grooves." This means that they have a clear-cut, well-communicated, well-established company policy, the kind that serves as a guide for their employees to follow when no specific rules apply.
As a first step in developing or revising any rules or procedures, including those that apply to risk control and safety, we urge that you develop a policy. It can be one that stands on its own or it can be included as part of a broader company policy or mission statement. Either way, this policy should serve as the yardstick against which to measure all of your rules and procedures. This will insure that there is consistency throughout. The policy will also serve as a yardstick for your employees to measure their behavior and performance when there are no specific risk control or safety rules or procedures that apply. A well-written policy statement also has value in letting your employees, customers, and the public know that their safety is important to your business.
Refer to the Policy Statements (Appendix A2) for examples of Safety Policy Statements that may be helpful when developing your own safety policy.
Effective Supervision
Because the supervisor is familiar with and close to the work environment and the employees, they are often in the best position to take action to reduce loss-producing exposures. Managers and supervisors must be responsible and accountable for risk control and safety performance in their departments. Basic responsibilities of supervisors include:
• Safety orientation of new employees
• Safety training of current employees
• Hazard identification and control
• Safety meetings
• Enforcement of rules and safe behavior
• Accident investigations
Hazard identification and control is one supervisory risk control responsibility that deserves additional comment. Day to day management and control of hazards, unsafe physical conditions, and unsafe behavior are the best ways to be proactive to prevent accidents and reduce insurance claims. Identification of uncontrolled hazards (i.e. unsafe physical conditions or unsafe behavior) is typically accomplished through periodic safety surveys and inspections. These must be well documented, and there must be an effective procedure in place to insure that repairs and corrections are made promptly. There must also be a formal procedure in place to insure that your employees promptly report unsafe conditions or behavior they observe.
Hazard identification and control can influence many different loss producing events. For example, good housekeeping reduces the likelihood of slips, trips and falls both to employees and to the general public. Well organized storage of materials reduces fire hazards and theft. Good driving habits and vehicle maintenance practices reduce the potential for vehicle accidents and injury to employees as well as property damage. The manner in which you control customer behavior may determine the amount of liability you have in the event of an accident involving a customer. Refer to Hazard Control (Appendix A3) for ideas about basic hazard control programs.
Claims Management
Effective claims management begins before an accident or loss ever occurs:
• Policy and procedures for knowing what to do in the event of an accident and how to do it must be well established.
• Accident investigation forms must be readily available.
• Employees must be trained in accident reporting, investigation, and review techniques.
• All claims must be reported promptly.
• If preparation is adequate, it's possible that some accidents will never become claims.
For example, should a customer slip and fall on your property it's possible they may not make a claim if your employees demonstrate the appropriate concern and consideration. However, you should still report the accident. Prompt reporting of claims is essential because studies show that when claims are reported late, they are likely more costly. One fact remains the same for all claim reporting, you can report a claim to FCCI at any time of day or night including weekends and holidays.
When investigating accidents always remember that the primary purpose of every accident investigation is to determine all of the underlying or root causes of the accident. How and why did your systems and procedures break down and result in this unwanted event (i.e. the accident)? Only then can you make an informed decision about what to do to prevent a repeat. To be certain of getting all the information you need, investigate accidents immediately while the facts are fresh in everyone's mind. When you have a clear understanding of what went wrong and what needs to be fixed, fix it promptly. Always keep in mind that carelessness is rarely an underlying cause. If management hires a careless person whose unsafe behavior causes an accident, the underlying cause of the accident is most likely inadequate hiring and screening practices. Also consider that when a behavior that causes an accident is considered careless, odds are a supervisor saw similar behavior before and ignored it. Poor supervision and ineffective enforcement of safety rules are two likely underlying or root causes of the accident. Perhaps the so-called careless behavior is a result of inadequate training. The point is that underlying or root causes of accidents, even those resulting from careless acts or behaviors, are typically symptoms of management failures.
Accident investigation and claims management procedures can vary somewhat for worker injuries, customer injuries, auto accidents, property damage. etc. For this reason, we've also provided information in other sections of this manual that deal with various coverages.
Review Results
Periodically, you should evaluate overall results to determine if your risk management program is effective. A monthly or quarterly review of all incident reports, accident investigation reports, and claim reports is important to making good business decisions. This will be an on going process and always part of your efforts to protect business, property, and people.
Look at the underlying causes of accidents and not just loss types when trying to determine trends. For example, workers' compensation accidents as varied as back strains, eye injuries, and finger lacerations can all point to inadequate supervision, poor hiring, and/or a lack of proper training. Vehicle accidents such as rear end collisions, failure to yield mishaps, and vehicle upset or overturn may all be traced to poor defensive driving skills, poor hiring practices, or possibly to poor vehicle maintenance. The review will help you focus on systems, procedures, and practices that need improvement.
Top 10 Management Challenges to Controlling Losses
1. Consistently and convincingly demonstrating top management commitment to risk control
2. Clearly stating and communicating company risk control policy and risk control program
objectives
3. Holding management at all levels accountable for risk control program effectiveness
and results
4. Effectively investigating accidents and determining underlying or root causes
5. Accurately measuring results and the effectiveness of the risk control program
6. Thoroughly evaluating and screening job applicants and potential subcontractors
7. Assuring adequate training
8. Enforcing safety rules uniformly and consistently
9. Being proactively involved with claims management
10. Recognizing and acknowledging that most accidents are symptoms of management
failure
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| ©2007 FCCI Services, Inc. |
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