Insurance Loss Control
What is 'Insurance Loss Control'
Risk management practices designed to reduce the likelihood of a claim being made against an insurance policy. Loss control involves identifying the sources of risk, and is accompanied by either voluntary or required actions that a client or policyholder should undertake in order to reduce risk.
BREAKING DOWN 'Insurance Loss Control'
Insurance companies and policyholders both benefit from reduced risk. Insurance companies help identify activities that can result in a claim being filed, and thus reduce the odds of having to pay out claims and dip into profits. Policyholders benefit from being more risk averse by having their premiums lowered.
Insurers may provide incentives to policyholders to be risk averse. For example, an auto insurance company may reduce the premium for a policy if the driver takes a driver’s education course. This means that the company will collect a smaller premium but can also reduce the risk of a claim being filed because a trained driver is more experienced with how to properly operate the vehicle, thus making the driver less likely to get into an accident.
Insurance companies may also require policyholders to undertake specific activities in order to reduce risk. For example, they may require a commercial building to install sprinkler systems to prevent the risk of fire damage, or to install a security system in order to reduce the threat of theft.
Insurers may offer businesses customized loss control plans. Developing such a plan involves a thorough examination of a company’s operations and operational history. The examination is designed to show the causes of risk, such as unsafe working conditions, and the plan provides a step-by-step solution to mitigating that risk. For example, a factory may use loss control consultants to understand what causes workplace injuries. The consultants may find that a particular part of the manufacturing process currently involves placing workers in situations in which they are too close to machinery, with a potential solution being to increase the distance between workers and moving parts.