Analysis of Incidence of Loss for Broking Clients - Assignment Example

FNSINBK506B Review incidence of loss for broking clients Assessment Booklet Cover Sheet Please ensure that a new assessment booklet cover sheet is completed with each submission to NIBA for assessment (you may also attach the markers previous comments if you wish). Office Use Only - Assessment Result NYC X C       Assessors Comments: Andrew, please re read the learning guide and my comments below before resubmitting. This activity is two fold, firstly you must prepare a set of procedures for identifying both insured and uninsured losses of the past policy period, which includes a method of reporting those losses and once that has been completed, to apply their procedures to the three points. Each individual client needs a loss reporting program designed to meet that client’s needs, however, there are three program requirements that should be consistent, these are: •Determine the content to be included in the program and the format for the program; •Assign responsibility for establishing and maintaining the program so that accurate, comprehensive and reliable records are available when required; •Ensure that information is recorded accurately and promptly so that the program is kept up to date. Procedures should include the above and the loss report devised should tell you the following about any loss: • How a loss occurred • What loss occurred • When the loss occurred • Under what conditions the loss occurred • Why the loss occurred • Where the loss occurred • Who was involved in or responsible for the loss • What loss control procedures were followed Once you know what has occurred then you can determine what action should be taken, they include: •Identifying the causes and effects of any loss •Assessing the risk control program to see whether there are any problems with the program that enabled the loss to occur •Checking whether loss prevention and control procedures were in place and whether they were followed •Assessing what effect the events surrounding the current loss will have on your client’s insurances •Adding the loss to the incidence of loss records •Determining whether the loss is large enough to warrant an insurance claim •Depending on the extent of the loss, you may have to develop for your client a series of options for managing the loss •Assessing the loss as part of the aggregate for the client organisation to determine whether changes need to be made in policies and procedures or any other component of risk management. All of the above should be taken into consideration when preparing a set of procedures for identifying losses. Now to applying the procedures to the tasks 1 to 3 – 1. Loss trends may be identified by: a. Conducting time series analysis b. Analysing event frequency data c. Analysing seasonal peaks d. Making loss value comparisons e. Analysing trend projections 2.Determining suitable actions on loss reports – There are three steps in this process: a. Identifying loss trends by carrying out statistical analysis of loss information. b. Review the impact and significance of loss trend information for the client so that areas of effective loss control can be specified. This requires students to think widely about “causes and effects” of risk to develop possible solutions. c. Identify options to reduce the size and frequency of loss to protect the client’s interests. This includes recommending risk management strategies, for example security locks, fire equipment, driver training etc., to reduce future risk to theft, fire/ accidents. 3. Formulating and recommending loss control programs that meet client needs: Loss records should be used in conjunction with trend information to formulate suitable programs your clients. Dear writer, please find the markers comments below for the assessment FNSINBK506B Review incidence of loss for broking clients , I will upload more comments after speaking to her: Andrew, you have now provided a set of procedures which is the 1st part of the assessment. You have provided an example of one claim however, what you need to do is select a client who has a claims history and apply it to the 3points set out in your assessment. 1.You need to select a client and identify loss trends over a period of time and then conduct & show an analysis of trends. 2. You then need to determine suitable actions for that client. 3. Then you need to formulate & recommend loss control programs that meet that clients needs (including risk prevention, loss prevention & loss control programs) ASSESSMENT ACTIVITY I PROCEDURES FOR IDENTIFYING LOSSES 1. Every loss whether insured or uninsured must be recorded containing the following data: a. Date, time, and location of loss; b. Description of loss, damage, or injury; c. Circumstances surrounding the loss, damage, or injury; d. Personnel in attendance; e. Immediate loss control action taken; f. Items lost/ damaged or injuries sustained; g. Anticipated cost of loss, damage, or injury; h. Remedial action required. Other requirements are as follows: Identification of appropriate measures of risk in order to define management of the risks. Defining and characterizing the system as well as the agents that are acting on the system. Identification of the sources of hazards as well as appropriate cover is needed, and form scenarios (that is hazard assessment). Quantification of the uncertainty of various factors as well as parameters and evaluation of the probability of various scenarios. Evaluation of the various consequences by determining the alleyway to exposure (that is exposure assessment) and the response to exposure (i.e. dose-response or sensitivity assessment). Evaluation of the sensitivity of results to changes in parameters. Summarization of the various elements of risk assessment in order to facilitate communication (OECD 2003). Procedure 1. Loss reports must be made in triplicate copies for the company file, management/ supervisors, and broker, and it must be compiled accordingly. 2. Analysis of loss reports. 3. Determine suitable actions on the loss taking into consideration the insurance policy. 4. Make recommendation and loss control programs to reduce the size and frequency of loss and it must be documented. DETERMINATION OF LOSS The process of determining loss is complicated and involves the following steps: Details of how the loss occurred The actual loss that has occurred When the loss occurred Circumstances under which the loss occurred What caused the loss The point or position where the loss occurred The person or persons involved in or responsible for the loss The loss cantor procedures that were followed Below is a report of the loss that occurred at the kitchen of Lighthouse Restaurant LOSS REPORT ACTION DETAILS (INCLUDING EFFECTS OF LOSS) Date, time, and location of incident. Day: Tuesday Date: November 3, 2009 Time: 11:30 A.M Location: Kitchen of Lighthouse Restaurant Description of loss, damage or injury. 1. The kitchen was flooded spoiling some of the goods and kitchenware stored at the bottom. 2. Kitchen staff slipped that cause twisted ankle and minor bruises. Circumstances surrounding the loss, damage or injury. Condition at the time: Tiled, clean and dry. Cause: One of the installed faucets used to wash the dishes broke down and cannot be turned off and something covered the drain. Effects: Water from the sink overflows and spilled into the kitchen floor making it slippery. Personnel in attendance. Chef Ray and other kitchen staff. Immediate loss control action taken Procedure followed: The main source of water is switched off. Was the correct procedure followed? Yes. Items lost, damage or injury sustained 5 sacks of flour, 10 canisters of pasta, Chef Ray injured his arm when he slipped. Anticipated cost of lost, damage or injury sustained. $3,000 Remedial action required. The faucet and water system in the kitchen needs repair; Chef Ray had to be brought to the hospital and require 2 weeks rest. EXPLANATION OF LOSS DETAILS The loss at the kitchen of Lighthouse Restaurant occurred mainly because one of the installed faucets used to wash the dishes broke down and could not be turned off and something that is yet to be identified covered the drain. Since the exact thing that covered he drain has not been identified, it is difficult to explain the nature of loss and this also makes it difficult to explain whether the appropriate loss prevention and control procedures were implemented and actually followed in detail. This means that there is need for more investigation on how the current loss will affect the client’s insurance details by analysis of insurance details such as subrogation and proximate cause. The amount of loss that occurred is $ 3000, which is a large enough a figure to warrant a claim based on the amount of principal as well as premium payments. Options on how to manage the loss There is need to carryout further investigations in order to reveal the actual cause of the loss, which will be phenomenal in detailing if and how the $3000 loss can be settled. It is also imperative that the injury sustained by Chef Ray be quantified in order to determine the amount of compensation required if any. If there be need to cover the loss then there will be need to pay off the $ 3000 arising from the damage to 5 sacks of flour and 10 canisters of pasta. Nevertheless, it is still difficult to determine the amount of loss resulting from the injury inflicted on Chef Ray when he slipped on the wet floor. It is also imperative that an investigation be carried out to determine if the loss that occurred can actually be directly related to the damage caused to the drain and whether Chef Ray actually slipped because of the same. IDENTIFICATION OF LOSS TRENDS Loss trends tell a lot about the risk management strategies that as well as programmes that an insurance company’s clients are putting into practice. Nevertheless the insurance company cannot know the nature of loss trends unless appropriate loss reporting is done in the client organization. Loss reporting programmes The loss reports such as the one illustrated previously provide information relating to the nature of losses that are being sustained to the company that is supporting them, as well as their insurers and relevant statutory authorities that collect such kind of information. The reports inform people in the relevant industry about the trend of risks as well as which risks have actually resulted in a loss. From these reports, valuable information about the trends can be derived, in addition, considerations for insuring various risks can be made based on the information contained in the reports. Loss reporting programmes are prepared by insurers but brokers have to ensure that the underwriters include all the sufficient data to enable them to perform their role as regards the same. Therefore, it may be necessary to for any company to include additional information that is not deemed appropriate by the underwriter to sustain. In turn, this will enhance more marketing activities to be carried out and is an addition to value of service. However, it cannot be assumed that the data generated by underwriters will be sufficient to satisfy the client’s claims or claim requirements. The insurer therefore has to ensure that the information written is the write one or alternatively keep its own records. Since there is an increased tendency to develop products have “guaranteed claims response times,” by loss adjustors and underwriters, loss reporting should allow the insurance company to identify such “guarantees and work at how to get them applied. The loss reporting program that is prepared by the insurance company should include many items including third party recovery actions. This means that the programme has to show the client’s excess recoveries. In this regard, the broker has to ensure that the insurer is performing effectively and efficiently. If this does not happen inappropriate action may lead to an adverse impact on loss ratios. Thus, the effectiveness of the underwriter’s rehabilitation programmes should also scrutinized in order to ensure that they are very effective not only meeting but also responding to the needs of clients. Loss reposting programmes are prepares by insures, but the information contained in the programmes comes from brokers. Thus, any data that is entered into a computer or in any file from client is part of the detail that is presented in the programmes. In many cases, a central area will be used to profuse the reports based on statistical data that is produces from a wide variety of sources. The information that is included could be from a wide variety of including the class of risk, the amount of business (that is the total sum or value of the business in currency, the size and or type of business that one is dealing with, and so forth. People who asses losses or loss assessors may be accountable for producing the report. But as well, an insurance company’s research or management team can be assigned the task. This depends on how the organization is structured so as to undertake the various tasks. The task therefore is to find about the loss reporting programmes that are used by the broking organization as well as the insurance company. In this regard, it is important to have the pertinent information and ensure that it is accurate, and as much comprehensive as possible. In addition, it important to ensure that the records kept are reliable and can be accessed when needed without delay. Most importantly, it is wise to prepare a loss reporting program for a company’s clients that provides the clients with information that is relevant to their needs. Loss trends can be identified using various ways that are applies as loss control tools. However, one significant method is to identify and analyse the loss trends throughout within the internal as well as external environments. This will shed some light on the basic information that is important to the overall control of risk within the respective client organizations. The understanding of the trends of losses enables the broking company to achieve a number of things. The first one is that it can determine whether the clients are improving their loss record. The second point is that the broking company can assess whether the losses that are experience comprise part of a national trend. The third point is that the broking as well as the insurers company is able to identify the strengths as well as weaknesses in the risk control mechanisms as well as loss prevention programmes. The loss trends can be identifies through a wide range of activities as highlighted below. Conducting time series analysis Analysing event frequency data Analysing seasonal peaks Making loss value comparisons Analysing trend projections Each of the points above provides very dissimilar data that may or may not be appropriate for the insurer’s or broker’s needs. Thus selection has to based on data that is most suitable for the current needs. The approach taken is based on the kind of business that the clients are involved in. For instance broker who deals in property risks will have needs that are vey different from those of a broker who deal in handling life risks. Trends analysis varies for different clients depending on whether the client’s loss trends have the following features: Follow national trends Deviate marginally from the trend in either direction Deviate substantially from the trend in either direction Internal data will reveal the following details about clients: • Whether they incur losses about the same as in previous years • Whether they are improving (which may have a positive effect on their insurances) • Whether they are in a state of decline (which may seriously affect their insurances) In the following section, it will be assumed that Lighthouse Restaurant has loss trends that occur as detailed in the table. Loss trends Causes Effects Time series analysis The loss at Lighthouse Restaurant is rare and has no case histories. The causes were unique not easily predictable hence the loss. Loss occurred as shown in the loss report previously highlighted. Event frequency Though not frequent, the loss at Lighthouse Restaurant can be noted to have a pattern that will recur in future. This is if the conditions remain as they were at the site of the loss It the conditions at the Lighthouse Restaurant remain as they were before the loss, it can be predicted that there will be a higher frequency of loss occurring at the same site, with losses whose magnitude will depends on the conditions of the site at the time of the loss Seasonal peaks Loss can be predicted to occur at Lighthouse Restaurant mostly during visitors’ peak seasons when the restaurant facilities are used beyond their limit or just to the limit point. The effects of overstretching kitchen n facilities may contribute to loss as the one that occurred previously at Lighthouse Restaurant Loss value comparisons of cases Appropriate measures were in place to prevent the loss but the loss occurred nevertheless. Other losses in addition to damage of drainage equipment were realized. Trend projections From available information, it cannot projected that the risk of the loss will increase or decline. But if the status quo is maintained for the facilities, the probability that the loss will occur again can not be ruled out. Not trend information is available but projections can be based on the previous loss Loss value comparisons of settlements The status of the kitchen facilities is as stated in the loss report. Details of the loss an injuries are stated in the loss report. Monitoring success of recovery actions and review technique employed. Recoveries are made depending on the nature of the loss as stated in the loss report. Measures have been put in place to monitor the nature of loss that may arise regardless of the prevailing loss control measures Using an example of a case where the trend of loss is known over a period, say three years, the case is presented as detailed below. Type of loss: Theft Period analysed: Three years Data Period Description of loss Year 1 The kitchen Lighthouse kitchen restaurant was broken into through the main door and the following damage occurred The main door was destroyed Three gas cylinders were stolen Two microwave ovens were stolen Three electric cookers were stolen The claim made was $ 1500 but $ 1200 was paid taking into account depreciation of the sais assets Year 2 A tree branch fell onto the roof of the Lighthouse Restaurant and damaged the wall as well as part of the roof. The damage caused could have paid for initially at $20000, but $20622.56 was paid taking into account the new value of the facility due to appreciation. Year 3 Current loss is $3,000, which is the value to paid after assessing the loss (excluding the injuries sustained). Presentation From the figures referring to losses at lighthouse restaurant, there is no risk that can be said to the most common. The risks are varied in nature and hence warrant more detailed analysis in order to provide the necessary cover. Managing losses Risk reduction methods Options for reducing loss 1 2 3 4 Frequency of loss Ensure that staff are trained on the importance of security both when they are inside or outside the restaurant facility Train staff on emergency management to avoid minor losses escalating into major losses Build better structures to minimize the effects of natural disasters such as storms. Provide better facilities to bar theft such as CCTV cameras at the kitchen Size of loss Hire more qualified personnel to offer security services at the restaurant Provide emergency management facilities such as better exists just in case some loss incidents become inevitable. Avoid disaster prone are such as near tree or large billboards. Hire personnel to support the cameras in order to ensure more security. In order to effectively study the loss trends in the Lighthouse Restaurant kitchen incidence, data was collected in a time series from the time of the loss vis-à-vis the previous conditions. The loss is a rare event that is not projected to arise more often given that no similar losses have occurred at the Lighthouse Restaurant. Determining suitable solutions Given the nature of the loss, is difficult to determine an immediate solution the current problem since it can not be anticipated when such a loss s expected to occur again. Cause and effects of the loss based on analysis of the loss reports The breakage of faucet rarely happens however there were already reports made of problems in the drainage system particularly in the kitchen. It was just recently that problems with the faucet arise due to long use and has not undergone any maintenance work. The damage as to the property and goods were not so serious but Chef Ray due to a broken arm had to rest for two weeks. Suitable Actions The loss, damage or physical injury obtained as a result of the incident is all covered under the business insurance policy of Lighthouse Restaurant owned by Mr. Martin Sheen. The insurance company will have to employ statistical methods in determining the actual loss after carrying out its own investigations for comparison with the loss details reported by Mr. Sheen. The insurance company will also review the impact as well as significance of the loss based on trends information at the Lighthouse Restaurant. This will enable Mr. Sheen to specify appropriately the effective areas of loss control. This understanding of cause and effect is very important in the context of loss recovery as outlined in the table. In order to avoid further losses, will be important o ensure that all safety and hygiene measure are observed within the kitchen. This will ensure that instances of blocked drains are unheard of and will avoid instance of wet floors that can cause human injury as well as property damage. Other measures include ensuring that locks, fire equipment, as well as other related tools are in good functional condition. Recommendations Problems no matter how small as long as it concerns the smooth running of the business must be reported immediately to the manager or supervisor in writing for action and follow-up should be made if no solution is made at the first instance. Any report must be compiled to easily determine the source of the problem and to be included in the risk assessment and management for purposes of insurance. References OECD 2003, Emerging systemic risks in the 21st century: an agenda for action, OECD Publishing, London. Read More