Loss control should be part of the daily operating plan of your business as a means to protect the hard work of you and your employees, says Brian Peck, Assistant Vice President and Loss Control Audit Manager at United Fire Group (UFG Insurance).
“There are unique loss exposures for each and every business and an effective loss control program can help reduce, prevent or avoid losses,” Peck says. “Effective measures to control losses can have a positive effect on your company’s financial stability and continuation of operations.
Smart Business spoke with Peck about the primary types of loss exposure that should be evaluated and how to develop a policy to protect your business.
What are the primary types of loss exposure?
The three primary areas that most companies focus on are property, liability and business income.
Property coverage exposures result in loss to buildings or personal property in which your company has a financial interest, whether the property is owned or leased. There are hazards common to all businesses that should be evaluated. These include electrical, heating, plumbing and housekeeping.
In addition, there are special hazards that are unique to a company’s operation that need to be evaluated. For example, a body shop using oil-based paint for its spraying operation has a much higher fire exposure than an operation using water-based paint.
With liability, you’re looking at exposures that result in an organization’s legal responsibility for injury or damage to another party due to negligence, something that can be devastating to a business’s operation. Effective quality control measures are important to assure products are manufactured or installed to specifications. Effective documentation is also critical to help in loss reduction if a liability claim were to occur.
Finally, business income losses are generally attributed to property and/or liability loss exposures that result in an interruption of operation.
If you’re a growing company and you lose your building or lose the use of highly specialized equipment due to a fire or some other calamity, the result could be loss of revenue, loss of customers or even a shutdown of your business. You need a program in place to continue operations as you work to get back to earnings stability and growth.
What is the difference between loss control and risk management?
Loss control is often used interchangeably with risk management.
Risk management is more holistic and includes risk control, but also includes risk finance. Independent agents work with policyholders on a risk management basis to put in place an insurance program that can not only transfer financial risk in the event of loss, but also assist in loss control measures.
How do you develop a comprehensive insurance policy to address loss control?
From a loss control standpoint, there are considerations to take into account when developing insurance coverages. For example, an effective loss control program that controls the frequency and severity of losses can help determine the type and amount of self-retention, such as deductibles and policy limits, to be carried in the insurance policy.
Loss prevention and loss reduction measures such as fire protection and supervisory systems can have an effect on the policy rate structure. Aggressive fleet control programs such as distracted driving policies, drug testing and telematics again can also make a big difference on rates.
When a loss occurs, the indirect costs can be much higher than the direct costs (costs covered by insurance). Indirect costs such as loss of customers and growth opportunities can have a negative financial impact on a company, but are often overlooked.
Loss control should be a major component of operating a business and should take into account both direct and indirect costs that occur with a loss. Not only does it reduce risk, it has other benefits such as improving product quality, increasing production and boosting employee morale.
Your agent and your insurance carrier’s loss control representatives can assist you in protecting your business. There are independent safety consultants specialized in evaluating loss exposures who can also help with your loss control program.
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