Effective loss control in captives demands ongoing analysis
Sean Majewski (pictured), of Hylant, explains how captive insurance can be a powerful tool for funding loss control, but real results come from addressing the root causes of risk, not just the symptoms.
Savvy risk managers have long recognised the value of loss control strategies as a way to limit the cost of their insurance coverage. That sense of greater control is also a common motivation for organisations that choose to create (or participate in) a captive insurance structure.
Using loss control strategies within captives can be especially valuable. In addition to the obvious benefits of reducing losses – whether the focus is worker injuries, damage to property or both – the captive structure offers a particularly effective way to fund additional loss control efforts. Doing so typically allows organisations to achieve continued long-term savings, while allowing them to deploy capital for strategic initiatives rather than make increased premium payments for traditional insurance coverage.
However, that strategy only works well when those organisations invest the additional effort to analyse their losses and optimise their loss control efforts to address the true underlying causes. The real drivers behind losses aren’t always as obvious as they might seem.
A company was experiencing significant losses in one area of its production facility. Specifically, it was recording an excessive number of injuries resulting from workers being struck by objects. Despite its best efforts, it was unable to reduce the frequency of these incidents. Its first response was to invest in a light curtain to help workers maintain a safe distance from the machinery, but the injuries persisted. That led it to spend even more to construct a physical barrier around the machine. It assumed that would solve the problem, but, you guessed it, the injuries continued.
Our team performed a deeper dive to identify why what appeared to be sensible and appropriate measures had failed to improve worker safety. That’s when the root cause was discovered: a cleaning process that wasn’t being properly followed. Because the equipment wasn’t properly maintained, the machinery was ejecting pieces of scrap material. In turn, that material was struck by a moving arm on the machine, which propelled the scrap out of the work area and into the operators of other pieces of equipment. The company had made significant investments in measures they believed would eliminate the hazard, only to find the solution to the root cause was simple maintenance.
It’s common for companies using captives to reach out to loss control professionals for guidance when faced with stubborn issues such as that. Sometimes, the solutions are fairly simple – but often, pinpointing the underlying problem takes deeper research and analysis.
Human error is often at the root of these types of issues, but that doesn’t mean workers are always to blame. One company asked us to serve as another set of eyes, reviewing the safety programme drafted by their attorneys to ensure it would keep the company in compliance. The programme’s manual was comprehensive and impressive, spelling out all the safety policies, training to support compliance and audits to ensure everyone was doing what they should.
Hylant conducted one such audit to see how well the effort was working, and quickly discovered the programme hadn’t been put into practice. It turned out managers and other supervisory personnel had assumed responsibility for keeping everyone safe rested solely with the company’s environmental health and safety team. They had no idea of their own critical role in maintaining compliance with the safety policies and improving workplace safety.
A similar situation involved a company whose management failed to grasp its responsibility to promote and ensure safe workplace practices. In its eyes, it was up to to employees to address their own safety needs – including decisions about controls and personal protective equipment. Our role became to educate the company’s leadership about the nature of safety and the expectation that they were responsible for eliminating or engineering hazards out of tasks, as well as developing positive attitudes about workplace safety. It’s impossible to create an effective safety culture when top leadership fails to buy into its importance.
Having a solid safety programme is just the first step in protecting companies and their employees. That’s why our team uses a standard four-step process to evaluate our clients’ loss prevention efforts and ensure they lead to sustainable, documented results. It’s an all-encompassing process that evaluates every aspect of its employee health and safety programme, including how the plan is implemented, incidents are reported and investigated, its claim management practices, preventive and corrective actions and, most of all, accountability at all levels.
The process begins with a comprehensive identification of risks that examines the documentation of the safety programme and its policies, as well as OSHA incident logs. The team studies past losses, previously implemented recommendations and the organisation’s current loss control action plans. From there, it seeks to analyse the potential risks and opportunities for improvements. The team assesses the likely impact of its recommendations and performs predictive modelling to provide an accurate calculation of the return on investment.
A thorough evaluation of the risks follows. This includes a review of the organisation’s data to verify its accuracy and completeness, and a closer look at the written programme to assess any inherent deficiencies. The team analyses the frequency and severity of claims and reviews industry standards, enabling a comparison of results against established best practices.
The final step in the process focuses on developing a strategic evaluation and outlining an overall plan. That involves prioritising the client’s potential exposures and action plans to address each. Our team coordinates the proposed risk improvement activities with the company’s resources and establishes accurate tracking to verify risk reduction efforts meet their targets.
Investing in loss control strategies is a smart move for any captive owner. Taking the next step and obtaining independent verification that those strategies are actually delivering the intended performance and anticipated results is even smarter.
The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.
Sean Majewski is senior risk adviser – casualty loss control at Hylant.
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