Enhance your risk management program with data-driven strategies

It’s not unusual for a company’s finance department to manage the insurance premiums and program structure, while HR and safety manages claims and loss control programs.

“Each department measures its own results, but until the company reviews all top drivers of the risk management costs holistically, it isn’t truly measuring the success,” says Kathy Betts, Area Vice President at Arthur J. Gallagher & Co.

For example, a company might resolve a workers’ compensation claim. But that payment might not be the best financial decision, could set a precedent for future claims or not address the root cause, such as a problematic shelving unit.

Smart Business spoke with Betts about implementing data-driven strategies for a holistic view of your risk management costs.

How do successful companies measure their risk management and safety programs?

It’s surprising how many companies don’t know how to effectively measure the success (or failure) of their programs. A few key considerations allow successful companies to get it done. Identifying, capturing and tracking the right data is the first step. Then, communicate goals and results throughout the company while encouraging employee input. To sustain long-term consistency and success, keep it simple.

What should be tracked and communicated?

Identifying key performance indicators (KPIs) and tracking them as a function of a meaningful exposure — payroll, sales or even number of units or pounds shipped — provides a clearer picture. KPIs should focus on common and costly types of losses or exposures. It’s important to capture and use accurate information and consider variables like state of operation, a recent acquisition or a law change. Beyond tracking KPIs, understand how those components affect the total cost of risk, which includes contractual risk transfer, program structure, etc. Are you getting worse or better?

How do companies bring it together to accomplish a holistic view?

Have finance, HR and safety all involved in understanding the full consequences of a program they’re purchasing, the size of the deductible, whether to settle a claim or even whether to insure something. Companies typically have internal one-pagers the leadership team reviews regularly, so top leadership should add some measurement of risk to the overall KPIs. Then, filter those throughout the organization. With more awareness, employees take ownership. If it’s not looked at holistically, you miss learning opportunities. If different disciplines look at what happened and how to prevent it, people may say, ‘That’s an easy fix.’

How can your insurance agent help implement a data-driven strategy?

The challenge with measuring and making data-driven decisions is capturing the right data — not only about your company, but also your industry. You need accurate information to make accurate decisions.

By working with someone who deals with different companies, he or she can help identify best practices and places to start. It takes sophistication to measure and track this. Plus, you have to prioritize; you can’t do it all. Beyond that, it’s important to convey what you’re doing to stakeholders, like insurance companies, so that you’ll get the best results. Your agent can provide some brief reports and assist you with communicating all your efforts. Your agent can also help identify an emerging issue so you can consider taking proactive measures, like driver training to prevent hijacking.

How do companies ensure long-term consistency and success?

A program may run smoothly until someone leaves. Again, keep it simple; if you get too in the weeds, it becomes hard, or frankly impossible, to manage. Accountability is key. Depending on the company size, it helps to split risk management into finance, HR and safety/physical activities, with one person to pull it all together. Update your plan annually, identifying top indicators and what activities you can perform to address those exposures, along with consistent internal communication. Set goals and see how you did at the year-end. Prevent as much of the cost of risk as you can by being proactive and getting input from the field. If you have good prevention systems in place, you’ll feel more comfortable assuming more risk.

Insights Insurance/Risk Management is brought to you by Arthur J. Gallagher & Co.