Filed Under:Claims, Education & Training

The Great Reporting Debate

Risk Managers and Loss Reporting

"What you don’t know won’t hurt you” is a proverb many of us have heard and maybe even said. In the realm of risk management, though, this maxim confronts professionals with the question of whether to report incidents to their insurance carriers. These incidents, or occurrences that do not trigger a demand for a payout, nevertheless can someday morph into claims or lawsuits. How wise is it for risk managers to report incidents to the insurance carrier on behalf of their companies? Were Hamlet a risk manager, he might ask, “To report or not to report? That is the question…”

Certainly there are valid arguments on both sides of the issue. Some risk managers are wary of reporting incidents to the insurance company. There are a number of reasons for this—whether because it represents extra work for the risk manager, for whom time is the scarcest resource, or fear that costs will skyrocket down the road. Risk managers suspect that reporting incidents as well as claims to the insurance company will worry underwriters, giving the latter reason to seek a pound of flesh at renewal in the form of higher premiums.

Risk managers often fear that “no good deed goes unpunished” and that giving the insurer a heads-up will result in higher renewal prices. Call it paranoia or justified concern, but many risk managers avoid being hypervigilant in reporting incidents.

The Insurer’s Perspective

The Risks of Underreporting

Another risk looms. If the policy requires the policyholder to report occurrences and later discovers that he or she has not, there can be adverse consequences. Again, insureds may fear that reporting incidents will cause premiums to rise, but if an underwriter discovers that an insured is “gaming” loss reporting and suppressing incidents, the premium will increase anyway. If incidents are underreported to make the insurer look better as a risk, then trust degrades, leading to higher renewal premiums or even non-renewal. Aggressive insurers might even argue that it amounts to a material misrepresentation. The risk of insurer pricing action may be greater from game-playing than it is from reporting incidents. The risk of underreporting outweighs the perils of overreporting. 

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