Loss control and selling insurance don't always mix

That's the trouble with trying to mix two distinct pursuits: You may not be able to enjoy either of them.

Loss control and selling insurance are much more closely aligned than are donuts and liquor; in fact, the two go together hand-in-glove. Still, they are two different services, requiring different expertise and standards of care.

It doesn't come easy

The exaggerated point is that loss control expertise doesn't come as a free add-on with an insurance license, as the plethora of certification programs on loss control and risk management demonstrate.

Loss control and risk management are often used as if they were synonymous, and they are indeed closely related, but not exactly alike.

Loss control is the proverbial stitch in time that saves nine. Typically, it refers to avoiding a loss that would be covered under an insurance policy—for example, an annual inspection of fire extinguishers, or similar measures to prevent or mitigate damage to persons, property or productivity.

Risk management, in its most technical sense, is a process identified by the International Organization for Standardization (ISO) on Nov. 13, 2009, to identify, assess and prioritize risks to an organization's opportunities, and to diminish the probability of those risks coming to fruition, and/or the negative impacts if the risks materialize. That mouthful of a definition is actually much shorter than ISO's Standard 31000, which outlines an enterprise risk management system intended to become second nature within an organization, at all levels. Put more simply, it is an organized way to try to repeal Murphy's Law ("anything that can go wrong, will go wrong"). A systematic, top-to-bottom approach to risk management is a great deal more detailed, and harder to put in place, than an annual inspection of fire extinguishers; it extends to all business functions that create opportunities for risk, or to reduce risk.

Risk management has been around much longer than ISO 31000, and has had many differing meanings. With the advent of an international standard, brokerage firms that promise risk management services should strongly consider whether they are holding themselves out to meet the ISO 31000 standards, or to some other meaning of the phrase.

I should disclose that I am vice-chair of the board of directors of the non-profit Insurance Educational Assn., founded in 1876, which offers three different risk management designations and certificates, plus e-courses, at ieatraining.org. So while I have no economic interest in risk management training, I am strongly bent in that direction, among others.

ISO what?

It's easy to imagine the cross-examination of a broker whose website promises "risk management" services, after a preventable loss has been incurred by her customer:

Anna Conda, plaintiff's attorney: Ms. Takin, I understand that your brokerage firm has maintained a website for the past few years. Are you familiar with it?

Takin: Why, yes, I am.

Conda: You show that website on your business cards, don't you?

Takin: Oh, yes, very prominently.

Conda: And you expect that your clients and potential clients will read the website and will believe that what they read about your company is true, don't you?

Takin: Certainly.

Conda: Ms. Takin, I show you now what has been marked as Plaintiff's Exhibit 107, a printout of one page of your website as it appeared in 2010, the year when my client, Hapless Enterprises, became a customer of yours. Do you recognize this page as coming from your firm's website?

Takin: Yes, except for the highlighting.

Conda: Please read aloud for us the highlighted paragraph.

Takin: It says, "At Takin & Levin Brokers, our efforts to protect your business don't stop when the insurance policy is issued. We also provide comprehensive risk management services, at no additional cost to you, to reduce your company's risk exposures, whether or not they are covered by insurance."

Conda: Did you in fact perform the comprehensive risk management services that your website refers to in your work for Hapless Enterprises?

Takin: Yes, I did.

Conda: Please describe all the things that you did for Hapless as part of those risk management services.

Takin: I walked around the facility with the owner, Joe Hapless, took notes of some tripping hazards I spotted and pointed them out to him, looked at his safety log and saw that there had been no serious injuries reported in over a year, and I reminded him to check the pressure on his fire extinguishers at least once a year.

Conda: Is that everything that you did for Hapless Enterprises in your risk management services? Is there anything else that you recall, or that is shown in your notes?

Takin: No, that's all. Joe runs a tight shop, and I found very little to suggest to him.

Conda: Ms. Takin, are you familiar with the phrase "ISO 31000″?

Takin: No. Is it some new policy form issued by the Insurance Service Office?

Conda: Am I correct then in saying that you have not completed any industry certification or designation in risk management?

Takin: Not formally, though I have had a lot of on-the-job learning, having had to report losses to insurers. In my view, risk management is just another way of saying that we should use our experience and common sense in advising policyholders about ways to avoid losses.

Conda: No further questions.

A fanciful work of fiction? Perhaps. Here are a few actual statements from brokerage firms' websites about their services. By quoting them here, I am not implying that the unnamed firms are exaggerating one iota:

"A knowledgeable broker will offer a wide range of professional liability loss prevention services and management resources. You should be able to look to your broker for valuable assistance in the review and negotiation of your professional service agreements—not as a substitute for competent legal counsel, but as source of information and guidance on issues of risk and responsibility he or she has seen many times before. You can rely on a good broker to know the limits of fairness and to help you hold that line in your negotiations with your clients."

"[We] help the [insured] develop a formal loss prevention program."

"Our risk management and loss prevention concept is unique compared to other programs. [We] provide our brokers a unique source of collective information and talent whether it is product information or help before, during or after the sale…We have uniquely tailored Risk Prevention and Risk Control techniques to each insurance program. [We integrate] traditional loss prevention and loss reduction offerings into one strategic plan. Loss prevention solutions focus on three areas: participating in safety committees, helping with industrial hygiene and ergonomic studies, developing client-specific training programs."

If you search the Internet for other examples of broker websites that mention loss control or risk management services, you will find, as I did, a wide variation. Some firms say nothing on the subject; others state in a general way that the firm offers such a service; yet others go into great detail about the steps that they take in advising business customers about risks and loss prevention.

The best policy

What is the right approach? In my view, accuracy is the best policy. Don't promise more than what you will deliver.

I am reminded of home inspectors' standard contracts—they, too, offer loss prevention advice regarding defects in a house's construction or maintenance that are visible to the naked eye, without entering crawl spaces or inaccessible portions of the structure, and with no scientific or destructive testing. A good inspection report can help a home buyer avoid many obvious risks, such as an unstrapped water heater breaking away from its plumbing during an earthquake. Those reports typically come with several pages of maintenance recommendations, and just as many pages of disclaimers. Even so, home inspectors get sued from time to time, often because of buyer's remorse in a falling housing market.

Do your firm's risk management or loss control reports contain the kind of detail that you've likely seen in an inspection report if you've recently bought a home? Do the reports have clear disclaimers as to the steps that you have not taken?

Don't let your customer's risks become your own. Review what your website and other written materials say you will do in helping your customers prevent or mitigate losses.

I hope you'll remember this column the next time you have a drink or a donut, or even both.