How Good is Your Risk Control Program?

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by Jeffrey Cavignac, CPCU, RPLU, ARM

The concept of insurance is unique.  A business can pay hundreds of thousands of dollars for a product it hopes to never use.  If the business does use it, it is likely the cost will go up and if the business uses it a lot, the insurance may not be available in the future.

An often-overlooked fact about insurance is that the premiums and deductibles comprise only a portion of the Total Cost of Risk (TCOR).  The Total Cost of Risk will not show up on your income statement, but it can be one of the largest costs for a company. OSHA estimates that, on average, insurance is less than half of the TCOR.  In other words, the indirect costs of dealing with risk exceed the direct costs.  For example, if a company spends 4% of its total revenue on insurance premiums, its TCOR is likely 8% or higher.  This underscores the importance of an effective risk control program.   The only way you can lower your cost of risk is to reduce the frequency and severity of the claims that drive those costs.  Risk control is designed to do just that.  The majority of successful companies invest heavily in risk control programs.

Risk control can be broken down into three areas: Safety, Human Resources, and Claims Management.  An effective risk control program will focus on all three areas.  So, how does your risk control program stack up?


If your employees were asked about your safety culture, what would they say?  “Safety is a major priority. Management goes out of their way to run a safe company.”  Or, might their response be, “Safety culture?  What safety culture?  It’s all about getting the job done as quickly and as cheaply as possible.”  Safety starts at the top. If senior management is not driving the safety culture, the culture will suffer.

  1. Who is your Safety Coordinator?  If you do not have an answer to this, you need one.  Someone in your company needs to have overall responsibility for safety, and depending on the size of your company, there may be several people sharing this responsibility.
  2. Who conducts the annual review of your Injury and Illness Prevention Program (IIPP) for OSHA compliance?  Every employer in California is required to have an IIPP.  If you do not have one, or cannot remember when it was last updated, you are out of compliance.  An Injury and Illness Prevention Program is the cornerstone of an effective safety program.
  3. Is there an effective Safety Committee that meets monthly?
  4. Are safety trainings for all employees tracked and monitored on a regular basis?
  5. Who conducts your Safety Orientation Program for new hires?
  6. Do you perform as-needed inspections and have written policies as well as documentation procedures for:
    • Job Site Safety
    • Field Equipment
    • Automobiles
    • Tools and Machinery
  7. Do you have a Safety Incentive and Safety Consequence Program?

Claims Management

Even the best managed companies will have claims.  How those claims are handled, however, will greatly affect the outcome and cost.  How are your claims managed?  Do the appropriate people know what to do in the event of a claim or a circumstance that might give rise to a claim?  Or, is every claim situation a fire drill that is handled by whomever happens to be in the vicinity when an accident happens?

Human Resources

The single most important asset most companies have is their human capital.  Protecting that investment and effectively managing the people you work with is critical to not only your staff’s physical wellbeing, but also to the company’s financial health.  How well is your HR department performing?  Do you have a qualified HR professional in place who is up to speed on current employment and labor laws and who proactively interacts with staff to avoid issues before they become problems?  Or is HR handled by someone with other responsibilities who does not really understand HR at all, and missed the meeting when they were assigned the task?

  1. Who is responsible for the HR function in your organization? If you are a larger company with 50+ people, you should have a dedicated HR professional on staff.  If that does not make sense, the person responsible should have an appropriate amount of HR training.  At a minimum, this person has to know what they don’t know, so they know when to ask questions.
  2. Have you conducted an HR Process Survey within the last 5 years? If you do not know what an HR Process Survey is, then you likely have not conducted one.  This is the first step in evaluating the status of your HR program.
  3. Do you have an employee handbook? Has it been updated within the past several years?  Does your staff have a copy of the handbook and is the handbook relevant and effective?
  4. Do you have written job descriptions for all positions within your company?  Written job descriptions are a basic requirement for effective HR and are integral to a Return to Work Program.
  5. Do you have a formal performance evaluation process for employees and are employees evaluated on a regular and consistent basis?
  6. Are you aware of Federal and State laws that directly affect your industry and companies of your size?  These laws are complex and change frequently.  While you may never know all details of the laws that could affect the company, a working understanding of the major laws is critical.

Final Comments

Investing in risk control can provide huge returns to your company’s bottom line.  How is your company’s risk control program performing?  Are you at the level you want to be or are there areas that need improvement?  Progress involves three basic steps.

  1. Determining what you want to accomplish;
  2. Figuring out what you need to do to get there; and
  3. Committing to pay the price to get it done.

So, where can your company improve and what are the next steps you need to take?  Or, in the words of the great philosopher Roger Sitkins, “What are you going to do differently today, to make tomorrow better than yesterday?”