Jonathan Clark advocates using loss adjusters' experience to reduce the risk of another major loss hitting your company.
You cannot manage risk unless you understand it. In order to achieve this understanding, organisations map risk in various ways. However, learning from actual incidents is also important in achieving effective risk management. Integrating loss adjusting skills within your risk management programme can help you gain the most efficient use of your resources when disaster occurs, in terms of both managing the incident and identifying the lessons.
Reducing the direct cost of claims often produces significantly higher hidden savings. For example. Department of Trade and Industry figures on personal injury claims arising from employment liabilities suggest that, for every £1 spent following an insured claim, between £8 and £32 of uninsured loss accrues.
Loss adjusters are often simply seen as investigating claims and advising on quantum and mitigation issues. This is how the Chartered Institute of Loss Adjusters defines their role. Their potential contribution to the risk management equation is frequently overlooked. The core competence of loss adjusters - claims handling -can contribute in two key ways:
These both require investigation on site or by telephone. Here, the adjuster is on home territory. Investigation is a skill that has developed rapidly in the last few years. It is constantly being refined.
Adjusters now conduct interviews in a way that does not pre-judge what appears to have occurred - fault is not being tested. They understand the need to interview promptly. Memory degrades rapidly; talking with colleagues and others can allow someone to rationalise and, in many respects, reassess observations.
Investigation in practice
Investigation considers direct causes, root causes and management system failures. By detecting the root causes of an incident, an organisation can address any management system failures.
For example, following a merger, a fire may occur at a new site, as the result of a hose becoming disconnected during a hazardous unloading process. At first sight, what has occurred is simply a fire. However, the direct cause may well be an unsafe act, such as failure to connect a hose correctly, or an unsafe condition, such as inadequate connectors.
Investigation reveals that the fire involves a first time operator and that there are no fail-safes on the pump or the systems being used during unloading. Poor engineering standards applied during the unloading process and to the overall systems.
As the interview progresses, it becomes clear that the operative has received no training. Further, he is unaware of any maintenance or engineering standards that apply and cannot confirm whether the supply contractor has adequate equipment for unloading.
In due course, it becomes apparent that the management systems failed. There are no programmes for supplier audit. Although there are instructions that no operator should be involved in a hazardous unloading process without training, these have not been confirmed or checked in the last three years.
A relatively minor incident such as this, properly and fully investigated, reveals the need for a major overhaul of management systems and controls on site. The risk management programme can then take this into account.
The search for management systems and controls underpins the vast majority of investigations nowadays. This reflects the shift in risk management focus from the physical, eg sprinklers within buildings, to the operational issues of day to day managing and running the business. Reaching the right conclusions means they can be dealt with.
Analysis
Taking this further, skilled adjusters, using the right claims management software, can analyse claims, eg employers' liability, looking for underlying trends that may be otherwise hidden. For example, an array of back injuries within a business may not be significant until it becomes apparent that they are only occurring in one location. Further investigation reveals that lifting gear and training are inadequate and that the company has not examined systems of work for many years. The absence of risk assessment on these premises again reveals inadequate management systems and procedures. Detailed investigations allow organisations to learn from incidents and take preventative measures. The second arena of mitigation is perhaps more germane - that of brand and business protection. Businesses with adequate business interruption cover who manage an incident promptly and effectively, using pre-rehearsed disaster planning scenarios, can recover market share rapidly and protect their brand.
Business continuity
The skill, post-claim, is to get the disaster recovery plan into action quickly and effectively. One defect in the majority of disaster recovery plans that I have inspected is that they deal predominantly with the macro. Most of them readily embrace the loss of a complete building or production line but do not identify that smaller levels of material damage can be critical to a business. A good example is the loss of a quality control department, or the loss of, say, 12 PCs in an accounts department at a critical stage for the business.
Adjusters can participate in business recovery - including fast tracking acquisition of alternative premises or alternative means of production. They have good access to proven sub-contractors, experienced in reclaiming machinery, cleaning premises and sourcing machinery and
premises rapidly. Recovery assistance can also include working with the policyholder and insurer to identify where money will be best spent to mitigate a business interruption exposure.
This is best achieved if, following the incident, the company completes some form of real life business impact analysis. Mitigation can be properly planned once models of the loss are available, understood and, perhaps, referenced to pre-existing models.
Product recall can cause widespread risk exposure. Loss adjusters can marshal resources to mitigate loss here by providing claims management facilities to manage a recall. Field forces, based around the world, can go into third party sites to establish the extent of a claim and its viability, while the cause of the incident is investigated centrally and relevant batches isolated.
Loss adjusters have staged pre-planning and dry runs of responses to recalls with companies. Testing systems for recall, tracing goods and categorisation of recall are specialist skills. They can work with their risk management colleagues to provide disaster recovery planning skills based around real life scenarios. If it can happen, adjusters have probably seen it happen, so they bring a practical approach to disaster recovery.
Adjusters offer high-level investigative skills for claims. They are also practised at helping businesses recover from both major and minor incidents. Their knowledge and particular industry skills can be an important element in a comprehensive risk management programme.--
Jonathan Clark is Crawford& Company's director of strategic operations development for the UK, Europe and Africa division.
