Loss Prevention and its Importance

While controlling and preventing losses is not always easy, it is the best course of action. Our advice on preventing and controlling risk is designed to assist clients to protect the property under their care, as well as the safety and health of persons who use their premises.

No matter how careful we are, losses cannot be totally eliminated. Understanding hazards and taking proper safety measures will help keep losses to a minimum, as will a detailed Risk Management Program.

Insurance is a form of risk management where you undertake to transfer part of the financial risk to another party in the event of an accident or loss. You must not rely on insurance entirely, as there are costs that cannot be claimed against an insurance policy, such as excess on a claim or the cost of labour in finding a repairer. Avoiding a claim by reducing its potential should be your first course of action.

Loss Prevention

Loss Prevention and Control is primarily concerned with preloss consideration, not post loss ‘patching up’. Loss Prevention and Control is as the name states, identification and evaluation of risks before they become losses.

It is necessary to carry out the ongoing role of risk identification and evaluation to protect and prevent personal injury and suffering before the damage or injury occurs. Investigation should be undertaken into your State’s Work Health & Safety Act requirements to ensure the environment for which they are responsible is not in breach of this Act.

A holistic risk valuation approach requires objective and accurate estimations of the maximum possible loss (MPL) and the normal loss expectancy (NLE), which both rely on quantitative analysis. However, novel approaches to risk also emphasize the importance of risk prevention to benefit insurance companies’ valuations. To support this methodology, a structured framework, based on both quantitative analysis and loss prevention, can provide a flawless tool for risk evaluation. This structured framework supports the insurance company, not only in the underwriting process of new clients by evaluating their risk profiles, but also in the optimization of their existing portfolios by prioritizing the areas of investment in the current business.

Insurance companies sometimes cannot afford or do not want to invest in the development of both structured loss prevention services and an objective tools. A quantitative framework approach would allow these companies to rely on effective risk evaluation processes. In addition to this, the tool targets insurance companies that lack effective and accurate valuation models and want to invest in upgrading their existing tools to exploit their maximum potential value.

In complex and embedded situations, in which market resilience, lack of information and an increasing number of specialty industries are the main threats, a quantitative framework is key to gaining the necessary knowledge to face risk evaluation. In fact, the framework gives insurance companies and first-hand users a homogeneous, 360-degree understanding of the situation, which is concise and objective at the same time, to make data-driven decisions. The benefits of the tool are many: access to a wide range of information, in order to develop cost-benefit-based decision-making, knowledge acquisition, intergenerational transmission and maintenance.

A loss prevention framework allows insurance companies to measure and mitigate risks.

Risk profiling has traditionally been carried out by insurance companies’ experts, who counted on their personal experience to define strengths and criticalities of each site through desk analysis and site visits. However, this method is highly subjective and, therefore, it is not appropriate to compare different sites, especially if different experts carried out the analyses.

To overcome this problem, cooperation between insurance companies and their clients can prevent avoidable economic losses and reduce clients’ risk exposure, which, in turn, benefits all shareholders insurance companies, their clients and society. In fact, a better understanding of a client’s risk exposure can help all involved parties:

• Insurance companies make data-informed decisions and define more adequate policies; they limit their own risk exposure and can, in turn, offer more competitive products than other companies that cannot assess risks as accurately.
• Clients are incentivized to improve internal risk management, in which improvements and good practices are acknowledged and reflected in the insurance premiums.
• Society and stakeholders as a whole are less exposed to risks; over time, businesses become more economically, socially and environmentally sustainable.