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Correcting loss-run problem areas

  • SIMA
- Posted: June 1, 2015
By Shay Leon, AAI, CIC
With increasing costs of insurance, one of the best ways to keep rates competitive is to maintain a good loss history. A large factor in pricing relates to experience rating off a five-year loss run. Companies will either discount or debit depending on your loss history. But what can you do if you had a few bad claim years that are driving your rates up and limiting your access to competitive rates? Following are tips on how to get back on track and keep your rate increases to a minimum.

Identify loss history trends

Identifying loss trends can bring clarity on how to avoid or eliminate future claims. If you don’t see obvious trends then look for clear indicators that have contributed to either loss frequency and/or severity. The goal is to understand what is broken before you consider a plan of action. Loss analysis is key in order to avoid spinning your wheels on nonrelated issues.

Formulate a plan
Once you have identified all the problem areas, it’s time to come up with an action plan:
  • Focus on developing an action plan to reduce and eliminate losses.
  • Involving the insurance company loss control rep can be very valuable in this process. Many times they have dealt with similar issues and bring firsthand knowledge, resources, and programs that have proven effective, most times at no cost.
  • Involve the insurance company underwriter. Their presence shows you are serious about the process and should bring a positive effect on your next renewal quote.
  • Your insurance agent should be the quarterback for the entire process, making sure everyone stays focused. Your agent should also identify whether other carriers should be brought into the process. This should be an option if your current insurance carrier isn’t on board, doesn’t have the resources, or simply doesn’t want to provide coverage for your company.
Put it in writing
Once you’ve outlined a plan, formalize it by making it part of your company’s operational manual.
  • Have a clear written safety manual that all employees must read and follow.
  • Implement the process from the top down, making sure all employees understand the significance of following procedures. 
  • Identify the processes that work and change or eliminate the ones that don’t.
  • Identify new safety issues and discuss a plan to resolve them.
  • Have regular safety meetings to review and discuss all related issues.
  • Make sure you keep your insurance company loss control rep and insurance agent involved in the process.
  • This is an ongoing, ever-changing process that needs to be monitored, evaluated, and changed as needed.
Like most things that are worthwhile, this can be a long, tedious process that requires time and commitment but the benefits can be plentiful - a safer work environment, happier and healthier employees, and lower insurance costs. 
What is a loss run?
Loss runs provide a history of claims made on a commercial insurance policy. Typically, an insurance company will request up to five years of history, or for however long coverage has been provided. A claims history is one of a number of factors that are taken into consideration when your application is being underwritten. If an application is approved, it can also affect the premium. What details are included in a loss-run report? Usually the named insured, policy number, claim dates, amount paid or on reserve, and a brief description of the claim. The report will also specify whether each claim is open or closed. Examples of typical loss trends:
  • The same drivers involved in most of the auto-related losses
  • Slip-and-fall snow claims are generated on the same job sites 
  • Similar type of auto losses such as rear-end collisions, hitting parked cars, etc.
  • Equipment theft from the same locations
  • Employees have similar injuries, such as eye injury, cuts from power tools, back stain, etc.
Shay Leon, AAI, CIC, is area vice president, commercial lines, for Gallagher Bollinger Inc. He also is a member of SIMA’s Stakeholder Advisory Group.
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