The Misconception about Claims
Many companies often make the mistake of looking at a claim in isolation. For instance, if a company had to pay out $150,000 on a claim, they might think that’s the end of it. But that’s just the tip of the iceberg. It’s crucial to consider the total cost of risk, not just the immediate cost of a claim.
The Bigger Picture: Total Cost of Risk
The real picture extends far beyond the amount you paid for a claim. It includes additional costs like the spike in insurance premiums or deductibles as a direct result of that claim. But even that isn’t the complete story. Inside the company, managing that claim can turn out to be a massive undertaking. From filling out endless forms to multiple meetings discussing the claim’s details, it involves considerable in-house hours, resources, and consequently, money. Statistically speaking, the total cost of risk can range from 2 to 20 times the actual claim amount.
The Real Impact of a Claim
When companies lament that their premium increased by, let’s say, $1,200 due to a $25,000 or $100,000 claim, they’re missing a broader perspective. That rise in premium is not the sole financial blow. When you account for the employee hours and the company’s internal resources dedicated to managing that claim, you begin to see the fuller picture. And often, the true cost can be anywhere between 2 to 20 times the claim’s face value.
The Value of Risk Management Services
This is where risk management services come into play, especially when working with an independent broker. It’s not merely about managing the claim amount but also about minimizing the time and financial resources spent on internal processes. Understanding and managing the total cost of risk ensures that claims don’t bog down your company unnecessarily.
Conclusion
In essence, understanding the total cost of risk is paramount. It gives you a more comprehensive perspective on what claims genuinely cost your company. If you’ve found this information valuable, please explore my other videos on related topics. For further queries on this matter, feel free to get in touch with me through contact or email. Thank you for reading!