Column: Roger's Soapbox

Could Have Been Worse

By: | December 14, 2017 • 3 min read

Roger Crombie is a United Kingdom-based columnist for Risk & Insurance®. He can be reached at [email protected]

Only claims made affect premium rates, right? Wrong.

British insurers use a central database, the Claims and Underwriting Exchange, to share data.

The Exchange records any inquiry about a loss as a loss. The moment you ask if you’re insured, the conversation becomes a “notification” and goes on your record as a loss report, even if you make no related claim.

Say you have pet insurance and accidentally set fire to your cat. You call to ask if the event is covered on your policy, but it is not, so you don’t claim and the insurer suffers no loss. As a result of the call, however, your premium rises, like the smoke pouring off your cat.

The Lloyd’s/RMS report said insurers should maintain an “alternative-claims book,” tracking hypothetical losses from near-misses and “could-have-been-worses,” multiplied by their probability. They might want to keep a “poor use of English” book, too.

Companies won’t discuss this matter publicly. That’s just how it is, so don’t call your insurance company if you suffer a loss and don’t know if it might be covered. Ask a friend or a palm reader — anyone other than your insurer.

In its defense, the practice of logging uninsured losses as losses is, at least, based on real events. But Lloyd’s and modelling firm RMS now suggest that insurers not limit themselves to basing premiums on actual losses, covered or otherwise. They should also price in fictional losses.

The Economist, which broke the story, reported on a near-miss between two planes taxiing at San Francisco airport. Had one pilot not pulled up sharply, the planes might have crashed into each other. As it was, he did and they didn’t.


Underwriters, until now, based premiums on events that happened. Claims in the airplane insurance market have lately been low, and premiums are therefore falling. Can’t have that, said the report, advising underwriters to factor into their pricing “what if” scenarios. Insurance companies that fail to track and record such non-events are missing an opportunity, Lloyd’s and RMS stated.

For emerging risks, a lack of precedent makes pricing tricky. Many insurers would not write terrorism risk in the months following 9/11, for example, because of a shortage of historical terrorism data.

Sane underwriters took a similar line on cyber risk for a while, until just about every company in the world was hit, providing a basis on which to price the risk of it happening again, which is about 100 percent.

The Lloyd’s/RMS report said insurers should maintain an “alternative-claims book,” tracking hypothetical losses from near-misses and “could-have-been-worses,” multiplied by their probability. They might want to keep a “poor use of English” book, too.

Suppose Hurricane Irma had hit Miami. The chance of that happening at one point was about 20 percent. The hit would have increased estimated maximum losses by $100 billion (The Economist said).

In the alternative register, this would be recorded as an additional potential loss of $20 billion. Besides deepening the data pool on which underwriters base risk assessments, Lloyd’s and RMS argue, such calculations could help regulators submit catastrophe models to stress tests.

How sensible is all this? Not very.

Telling insureds who have never claimed on a policy that their premiums have tripled because of losses they did not suffer seems unlikely to help anyone, especially the industry, in the long run. (Slaps forehead, stops writing.) &

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]