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Loss prevention, or risk control, is the process of identifying and controlling hazards to avoid or minimize risk. It is key for organizations to comprehend the hazards and exposures faced so they may design and implement sustainable strategies, management systems, and make thoughtful decisions related to their retained loss costs.
Businesses can control their total cost of risk (TCOR) by managing their loss prevention programs well. A robust management system is fully integrated into operational processes, employee and driver selection, equipment procurement, task design, and the overall risk management strategy.
A well-designed loss prevention program focuses on risk avoidance, exposure control and mitigation along with injury prevention and claim cost reduction strategies. Experienced and successful risk professionals understand the relationship between injury prevention and the avoidance of claim costs. Risk managers should be able to articulate:
- The causes of loss across workers’ compensation, automobile liability and general liability exposures
- How their organizations are actively engaged in injury prevention strategies
- How their claims management strategy can mitigate costs after an incident
Successful risk managers improve their overall risk profile by maintaining relationships and collaborating on strategies with their operational management counterparts in maintaining risk control and injury/vehicle crash prevention programs to reduce their TCOR. In addition, measuring the impact of these strategies can help the organization prioritize resources.
Risk Control and Prevention Can Drive Financial Performance
Traditionally, it was difficult for some risk managers to pinpoint what elements of their total cost of risk were under their direct control. However, analysis has revealed that roughly 70% to 80% of a typical organization's TCOR is a result of retained losses. Retained loss costs are absorbed directly by the business and typically are in the form of deductibles or self-insured retentions and can be pertinent to financial results.
A deeper understanding of the characteristics of losses can lead to a significant impact on an organization's financial performance. Prevention programs reinforced by the knowledge of the data, analytics and resulting insights are powerful in informing the direction of operational improvements and focused safety initiatives to reduce incidents and the associated costs. Often, this requires data capture not typically completed in a traditional claims reporting system. Still, with a few additional elements consistently and systemically captured, the data can direct the organization to specific prevention strategies and measurement of improvement. These elements can include the occupation, task and specific location of the incident, types of motor vehicle crashed and the contributing factors to those incidents.
Pre-loss programs become more critical in tougher insurance markets.
In an uncertain economy where costs are under more scrutiny, risk managers can unlock hidden value through improving their loss prevention programs. Better data collection will fuel this improved process. Businesses that can tell a compelling, data-driven story about their loss history and what those losses are projected to be in the future have a decisive advantage when it is time to renew insurance coverage. A thoughtful loss history using accurate and current data along with articulation of the prevention strategies will help ensure competitive pricing, policy terms and conditions, even in challenging market environments.
Data Is Critical to Understanding Loss
The organization's operational and safety team plays a vital role in collecting data to develop trends and insights and mitigate risks. Data helps risk managers appropriately establish and support safety programs and process improvements targeted at major workplace safety and health issues, such as ergonomics, fall prevention and motor vehicle crash prevention.
Loss prevention programs should be established to evaluate and quantify a range of risks, as well as convey improvements in risk reduction and improved claim costs over time. Every organization will have a different risk profile depending on their industries and locations. For example, U.S. loss prevention programs that focus on ergonomics and fall prevention strategies, which are the two loss-leading areas of injury in most workers' compensation claims, can be more effective on TCOR and should be an area of emphasis for pre- and post-loss efforts.
Effective Risk Control and Prevention Programs Promote a Culture of Safety
Data-driven loss prevention programs' performance should be visible to all stakeholders. Indeed, each has a role to play in preventing accidents and promoting workplace safety. This knowledge fosters and maintains a culture of safety – doing what is smart/effective for the workers and business.
When employees throughout the organization know that their employer will do everything in its power to prevent a person from getting injured, and that when an injury does happen, the organization will work aggressively and quickly to resolve their claim and take measures to avoid similar events in the future, a “culture of safety” begins to form. Injury prevention and safety is about an organization doing what it can do to help protect its workforce by keeping employees free from exposure and hazards that can lead to injuries, and more engaged, motivated and productive employees. In this way, all departments and employees begin to care about the organization's financial health and the health of the workforce. While the use of virtual care has skyrocketed, maintaining the momentum and capturing its full potential will require increased collaboration among plan sponsors, payers and healthcare providers to more fully integrate virtual care into the design of health plans and delivery of healthcare services, supported by aligned financial incentives.Risk control and safety must be a broader part of the conversation beyond risk managers and the C-suite.
Achieving a safe workplace takes effort from every employee.
Managing, controlling and preventing risk can produce financial results that help an organization efficiently use its resources in volatile times and lower its TCOR. Those are positive results but protecting people who are the core asset of an organization should be the primary goal of risk management programs. That's where the long-term value of loss prevention can be generated.