As a loss control representative for a commercial insurance company and through my ASSE involvement, I come into contact with many different safety professionals. The number of these professionals who are not familiar with the insurance mechanism used to surprise me, but as my career has progressed, I have realized that the insurance operations tend to be handled by a different department, and some of the finer details regarding insurance are only briefly covered in school curriculum or are overshadowed by the technical skills needed to succeed as a safety professional. The purpose of this presentation and paper are to provide the safety professional with the knowledge to assist in evaluating their current insurance products and to better maneuver through the insurance process.

Commercial Insurance

Technically, commercial insurance is a contract that transfers the financial burden of particular losses to a commercial insurer who acts as a transferee by agreeing to pay losses to or on behalf of the transferor (insured).1 We are all familiar with insurance - it is required by most states to cover certain types of risk (for example, worker's compensation).

When a company chooses its risk management options, management tries to ensure that the monies will be available for those losses expected to be incurred. This applies even if (especially if) using an insurance company. An analysis by A.M. Best showed that the failure rate for insurance companies went from 0.21% to 1.33% from 1995 to 2002 (see Table 1). That same analysis determined that more than half of the two hundred eighteen property/casualty insurer insolvencies between 1993 and 2002 were due to reserve deficiencies. Rapid growth accounted for 17.3 percent of the insolvencies over the period studied - particularly during soft markets.

Table 1. This table shows the frequency rate of insurance company insolvencies since 1995 as determined by A.M. Best (available in full paper).

What does this mean for the safety professional? If you are involved with the insurance buying decision, you will want to become familiar with A.M. Best, Moody's Investors Services, Standard & Poor's, Demotech, and Weiss Rating Service. These agencies have qualitative and quantitative criteria for measuring the financial stability of insurance companies and their analyses should be viewed as complementary versus competitive information. They look at leverage, diversity of investments, loss ratios, combined ratio, return on assets, market condition, competitive position, coverages written, and, of course, adequacy of reserves. Each agency uses a different rating scale so it is important to know what the numbers mean - is "B" a secure rating or a vulnerable rating? It all depends on which agency's information you are reviewing.

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