Prevent first; insure last
The future of our profession is not simply becoming
more efficient at placing insurance. It is
becoming better at understanding risk.
By Randy Boss, CRM, CIC, MWCA
One of the easiest traps for an insurance advisor to fall into is assuming that an insurance problem is actually an insurance problem.
Several years ago, we began working with a tool wholesaler that believed it had a workers compensation insurance problem. In fairness, it certainly looked that way.
The company had a history of claims, an experience modification factor of 2.00, and its workers compensation carrier was preparing to cancel the policy. Rates had more than doubled, and the company appeared headed for the assigned risk pool at significantly higher cost.
The obvious response would have been to shop harder for insurance. But that wasn’t really the problem. The problem was what was happening inside the business that was producing the claims.
We began working with the company on a formal risk management process, looking beyond the policy to the causes of the losses and the practices that could be improved. The existing carrier knew the results this type of process could produce and ultimately decided not to cancel the account.
Over time, the company’s experience mod fell from 2.00 to approximately .80. Its workers compensation costs dropped dramatically as the organization became a much better risk.
But the biggest payoff came later. When the owners eventually sold the company, they told me that the improvements we had made to their workers compensation results increased the value of the business by more than $1 million.
Think about that. What started out looking like an insurance problem ultimately became a business-value issue. We didn’t solve it by simply finding a cheaper policy. We helped the client become a better risk—and a more valuable company.
That experience reinforced something I have seen many times over the years: The insurance program is often the scorecard, not the problem.
A client may tell us workers compensation costs are too high, auto premiums are climbing, the property carrier is tightening terms, or liability losses are becoming a concern. Our natural reaction is to look at the insurance program. We think about carriers, deductibles, limits, program structure, and pricing.
Those are all legitimate considerations. But before we ask how to insure the risk differently, we should first understand why the results look the way they do. Insurance doesn’t usually create the problem; more often, it simply sends the bill.
Workers compensation is often an operations problem
Workers compensation is a perfect example. A company may believe it has a workers compensation problem because its experience mod is rising or premiums are increasing. In reality, the root cause may have little to do with the policy itself.
Poor hiring practices can place the wrong employee in the wrong job. Inadequate orientation can expose a new employee to hazards before they are ready. Weak supervision can allow unsafe practices to become accepted. Delayed reporting can make claims more difficult to manage. The absence of a meaningful return-to-work process can turn a relatively minor injury into a lengthy and expensive claim.
None of those are insurance problems. They are management, hiring, training, supervision, and safety problems.
The workers compensation policy is simply where the financial impact eventually appears. If our only response as advisors is to shop the policy, we may save the client money for a year. But if the underlying conditions remain unchanged, the problem will return.
Auto insurance may be a driver management problem
Commercial auto tells a similar story. The auto insurance market has been difficult, and businesses have experienced higher rates and tighter underwriting. But repeated auto losses are rarely solved by changing carriers alone.
Driver selection matters. Motor vehicle record review matters. Distracted-driving policies matter. Vehicle-use rules matter. Supervisor accountability matters.
A company that lets marginal drivers behind the wheel, ignores repeated violations, or fails to address unsafe behavior creates exposure long before an accident occurs. The insurance company may eventually pay the claim, but the loss may have started months earlier with a hiring decision or a manager who failed to act. Again, the policy is not the root cause.
Liability problems often start with contracts and controls
Liability problems can develop the same way. A contractor experiences a subcontractor loss. Completed work fails. A customer is injured. A product causes damage.
Naturally, we look at coverage. We need to know whether the appropriate endorsements were in place, whether the contractor obtained additional insured status, and whether the contract contained appropriate risk-transfer language. Those questions matter, but they are only part of the picture.
Good risk management starts earlier. Subcontractors need to be selected carefully. Insurance needs to be verified rather than simply collected and filed. Coverage limits and expirations need to be monitored. Contract requirements need to be understood. Work needs to be inspected and documented.
Possessing a certificate of insurance is not the same as having a risk management process. A certificate is one component of a much larger system. When that system is weak, the insurance program will eventually expose it.
Property claims can begin with maintenance
The same thinking applies to property insurance. After a major water, fire, or equipment loss, the conversation quickly turns to deductibles, limits, replacement cost, and coverage. Those issues are important. But many property losses have roots in maintenance and operations.
Roof inspections may have been deferred. Aging electrical systems may not have been inspected. Water shutoff procedures may not exist. Housekeeping standards may have slipped. Employees may not know how to respond when something goes wrong.
Some losses are truly random. Many are not. Sometimes the loss has been quietly developing for months or years before it becomes large enough to get everyone’s attention. The claim is simply the moment when the underlying problem becomes expensive.
Loss runs, OSHA records and mod analysis tell a story
One of the most underused risk management tools available to an insurance advisor is the loss run. Too often, we treat loss runs as paperwork. We order them, forward them to the underwriter, use them to obtain a quote, and move on. But loss runs can tell us a great deal about the organization.
Repeated back injuries may point to lifting practices or ergonomics. Frequent slips and falls may reveal a housekeeping problem. Vehicle accidents involving newer employees may indicate a driver-selection or training issue. Claims concentrated in one department or under one supervisor may tell us where to look more closely.
OSHA recordkeeping data can add another layer of insight. The OSHA 300 Log, 301 incident reports, and annual summary can help identify injury patterns that may not be obvious from insurance loss runs alone. They can show where injuries occur, which injury types are most common, which jobs or departments are involved, and whether certain problems repeat over time.
That information becomes even more useful when reviewed alongside the company’s experience modification factor. Too often, the mod is treated simply as a number that affects premium. But a good mod analysis can tell us much more. It can help identify which claims are driving the calculation, where loss frequency is hurting the account, whether open reserves are distorting the result, and where future improvement may have the greatest financial impact.
In other words, the mod should not just be explained after it changes; it should be analyzed as part of the risk management process.
When loss runs, OSHA records, and mod analysis are viewed together, they can provide a much clearer picture of what is really happening inside the business. A claim file tells us what the insurer paid. OSHA records can help us understand the operational circumstances surrounding the injury. Mod analysis can show how those losses are affecting the client’s future cost structure.
Together, they can reveal trends in frequency, severity, job type, department, tenure, body part, and type of event. More important, they can point us toward the areas where corrective action can make the greatest difference.
Patterns matter. These reports should not simply tell us what happened. They should help us understand why it happened, what it is costing the client, and whether anything changed afterward. That is where the real value begins.
If our only response to these problems is to shop the account, we are treating the symptom instead of the cause. That may make us good insurance marketers, but it does not necessarily make us good risk advisors.
The advisor’s role has changed
For years, many insurance professionals built much of their value around access to markets.Getting the best quote, developing strong carrier relationships, and negotiating favorable terms remain important skills. But market access alone is becoming less differentiating.
Technology continues to make insurance transactions easier. Data is easier to obtain. Quotes are faster. Administrative activities are increasingly automated. That means the advisor has to bring something more to the relationship.
We need to understand how the client makes money, where the organization is vulnerable, why losses occur, and what can be done to prevent them. We need to understand the business, not just the insurance program.
The future of our profession is not simply becoming more efficient at placing insurance. It is becoming better at understanding risk.
A challenge to advisors
Here is the challenge I would offer every business insurance advisor: Take a hard look at the conversations you are having with your clients. If most of your value is centered on premiums, coverage comparisons, carrier options, and renewal dates, you may be functioning more as an insurance salesperson than a risk advisor.
There is nothing wrong with placing insurance well. That is part of the job. But it cannot be the whole job.
The real opportunity is to help clients understand what drives their losses, where their operations create unnecessary risk, and what can change before the next claim happens. That requires us to get out of the policy and into the business. It means reviewing the right data, walking the operation, understanding the people and processes, and helping the client take action.
If we want clients to view us as advisors, we have to do more than call ourselves advisors. We have to earn that role.
Start with the business
The next time a client tells you they have an insurance problem, resist the urge to immediately open the policy or start looking for another carrier. Start with the business.
Walk the operation. Talk with employees and supervisors. Review loss trends. Look at hiring and training practices. Understand vehicle controls. Review contracts. Examine return-to-work procedures. Find out what changed after the last serious claim. You may discover the insurance problem isn’t really an insurance problem at all. It may be an operations problem. A people problem. A process problem. A management problem. Or a prevention problem.
That leads to a simple philosophy I have come to believe strongly: Prevent first; insure last. That does not mean insurance is unimportant—far from it. Insurance is still a critical financial tool for protecting the balance sheet when a serious loss occurs.
But insurance should not be our first response to every risk. Our first response should be to understand the exposure, reduce the likelihood of loss where we can, and improve the organization’s ability to manage risk. Then we insure what remains.
Every advisor has to decide what role they want to play. Do we want to be the person who shows up when the insurance needs to be renewed, or the person who helps the client become a better risk?
Before asking, “How do we insure this better?” ask, “Why is this happening in the first place?”
Prevent first; insure last. That is where real risk management begins.
The author
Randall Boss, CRM, CIC, MWCA, is a Certified Risk Manager and insurance advisor at Highstreet-Ottawa Kent with more than 40 years of experience helping employers improve their cost of risk through prevention and operational discipline. He is also co-founder of Emerge Apps (emergeapps.com), developers of software tools designed to help insurance advisors move beyond quoting to become true risk advisors.
