The predictive value of claims histories and company policies
The majority of Risk & Insurance managers in the Netherlands sees little predictive value in the claims histories of a company or sector for future claims. However, Tom de Nooij, managing partner at Riskonet, believes that generating better quality statistics using more data hugely supports the development of good company policy.
During a recent NARIM conference, I took part in a discussion on organisations’ claims histories. The outcome seemed to be quickly resolved, as the participants were all in firm agreement: claims histories do not offer any guarantee for the future! After all, what does it mean if insurer A has various companies from a certain sector in its portfolio that have not made any claims for industrial fires for ten years? If insurer B then throws itself into the same, apparently lucrative market, it may be hit with serious industrial fires every year and high losses!
Does a rosy claims history in a certain sector in the Netherlands mean than the risks for a company in that sector are slight? Or do these companies operate a smart and sensible risk policy and make large scale investments in the correct fire prevention systems? Statistics on claims histories can be extremely misleading!
However, I would like to see us give greater attention to statistics. After all, the data contains lessons about specific areas where hazards and risks are clearly greater. For instance, sectors where certain incidents occur more frequently than average or where prevention or mitigation actions seem to have insufficient effect. I think that the image that we have of the practice is not yet complete or sufficiently in-depth. This is also the case for insurers: they only see that part of the incidents for which a claim has been submitted. The cases that do not appear above their risk threshold do not get exposed.
I still think it is a shame that previous initiatives have become bogged down in precisely documenting the operational practice of fire brigades. We could learn a lot from the data on the deployment of people and materials and the effect this has on limiting fire damage. Knowledge can and should inform the development of risk policy. That is why I would also be strongly in favour of bringing together the data on incidents and claims, not just for each country, but for the whole of Europe or the entire western world. The wealth of information may provide valuable insights into where risk and insurance managers can perform good work. That is why we can answer the assertion that ‘claims histories predict future claims’ with a resounding ‘yes’. The past can indeed provide a good indication of hazards and risks.
What can we do with all of that data? Developing risk policy for companies and insurers. We can make sure that we do not repeat mistakes. Analysing the data can provide insights into many frequently occurring causes. This enables us to expose blind spots and identify best practices. It is helpful to all of us to put a sensible company policy in place in which we invest extra energy in weak areas in order to avoid future claims.
This brings me to another assertion that was raised at the NARIM conference, namely that ‘company policy predicts future claims’. Anyone who does their homework and who looks at the hazards, risks and measures with an open mind will have an influence on future claims, particularly in reducing or even eliminating these claims. If the statistics teach us that electrical installations in certain sectors play an important role in causing fires, then we can do something about this. What can go wrong, what are the scenarios and how can we prevent this from becoming a reality? Risk = chance x consequence! Reduce the chance and you are doing well. If that is not possible, then concentrate on measures to reduce the consequence.
Therefore, company policy does have a considerable impact on the occurrence of future claims. I also think that it should be more than just a cold, numerical counting or multiplication exercise. I recently spoke to a company director who had the risk policy of his organisation in good order. However, he was also well aware that all of the measures have little value if people do not share the safety culture, for instance by keeping each other on their toes in enforcing the no-smoking policy. We put this to the test and wandered around the company premises together while smoking a cigarette. Nobody approached us about the cigarette. “What I would have liked to have seen, for instance, was for a cleaner to have thrown a bucket of water over us without a moment’s hesitation and put out our cigarette. This would have been an amazing cultural initiative, said the director.
So, the message is yes, with good policies we can predict and prevent future claims. However, we should not forget the soft factors, such as culture. I have noticed that it is still a long way from being spontaneous. In many organisations, the management does not see the importance of this and consider awareness campaigns as unnecessary frills. Even though in the bigger picture it is a very decisive factor. As someone once said: ‘culture eats risk management strategies for breakfast’. This is a view I fully subscribe to.
Tom de Nooij, Managing Partner at Riskonet