Magazine article Risk Management

Loss Control: Growing Role for Captives

Magazine article Risk Management

Loss Control: Growing Role for Captives

Article excerpt

Loss control, a vital component of any risk management program, is assuming even greater importance today for many firms with captive insurance companies. Whether it is fire protection, engineering, boiler and machinery services, chemical process safety, business continuation planning or any of the other standard loss control categories, interest is burgeoning on the captive side of the equation.

The bottom line is much of the reason why, says Robert Virtue, president of International Risk Management in Bermuda, a member company of the International Risk Management Group (IRMG), with an annual premium volume of over $1 billion. "As prices increase," he says, "companies obviously want to decrease expenses, so they're outsourcing loss control for their captives. For example, if you had two loss control engineers on the payroll costing $200,000 per year, and I went to you and said I can do the same work for $120,000 because I've got the engineers, how long do you think it'd be before you'd say, `fine, I don't need my engineers anymore?"'

Such cost-cutting opportunities are one outgrowth of the industry trend toward the unbundling of services. Until a few years ago, notes Mr. Virtue, one could not get engineering or administrative services from IRMG without being part of their captive facility. Today, these and other services can be purchased regardless of whether IRMG manages the captive. Other large companies such as the Industrial Risk Insurers and Factory Mutual offer a wide variety of services, as do a plethora of smaller firms. This relatively new wrinkle in the marketplace lets companies more easily tailor services to their individual needs. The mix-and-match option also works the other way around. "If you want us to simply manage your captive," says Mr. Virtue, "we can do that, and we'll charge only for captive management. We do not have to charge for property inspections or engineering."

American Risk Consultants, Inc., an IRMG affiliate that specializes in loss control engineering, is flourishing in the bonanza of unbundling. Bill Ramonas, president of American Risk Consultants, says that roughly half of his company's business is unbundled. He views the increased emphasis on controlling losses as a combination of forces. Sharper perceptions of natural hazards, coupled with the reality of today's leaner and meaner corporation, create greater management interest in loss control, whether companies utilize captives or traditional insurers.

American Risk's services run the entire gamut: fire-protection engineering, boiler and machinery services, infrared thermography, electrical testing, ergonomics, environmental consulting, chemical process safety and business interruption planning. But with this freedom of choice comes the responsibility to choose wisely. "Historically," says Mr. Ramonas, "most of the property loss control efforts focused on the physical protection elements of the facility. Part of that is because it's easier. You put in sprinklers, use adequate building methods and handle flammable liquids properly." On the other side of the issue is loss-of-use, which is where the real exposures are today, particularly for large manufacturers. But these risks are difficult to quantify.

"What has been happening recently is that you're finding more and more companies where you once had three or four plants that all manufactured, say, keyboards, but today you probably only have one," says Mr. Ramonas. "As a result, the loss potentials have increased, because there's more single source supply, and companies need to develop a more sophisticated approach to preventing the loss-of-use type of occurrence. …

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