Magazine article Risk Management

Proper Loss Control Involves Looking beneath the Surface

Magazine article Risk Management

Proper Loss Control Involves Looking beneath the Surface

Article excerpt

Proper Loss Control Involves Looking Beneath the Surface

The cost of risk can be viewed as an iceberg that has a side hidden under water that is just as large and dangerous as the more visible portion on top, according to Thomas Kaiser, senior vice president of Arkwright Mutual Insurance Company in Waltham, MA.

Mr. Kaiser said his "iceberg" theory projects these hidden costs from one to 50 times greater than the insurance costs. These costs can encompass the price of new machinery, the loss of shelf space and storage, training employees and an increase in advertising to regain market share.

"The cost of risk is the sum of all accidental losses," he explained. "Some of these costs are easy to identify, such as the direct cost of risk control. Other costs are more difficult and complicated to measure." Mr. Kaiser said they include the "cost of risk transfer, retained losses, uninsurable losses, personnel losses, the loss of good will, loss of market share and time spent by [risk managers] and other managers to restore the operation back to normal."

Thus, minimizing the long-term cost of risk involves more than reducing the cost of insurance premiums. In addition to deductibles and self-insurance, it involves the cost to measure, prevent and reduce the size of accidental losses. These are often hidden costs, which cannot be seen unless one looks beneath the surface.

To Survive

For an organization to survive, Mr. Kaiser said it must have the necessary cash flow, be able to retain key personnel, have products and services which are accepted by the government and the public and meet its legal obligations. …

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