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The human element: Manage the weakest link by enabling a culture of risk awareness

Industry Trends | By | 23 Apr 2019 | 5 minute read

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Companies are not inanimate objects. They are made up of people and, left unchecked, people will make mistakes that can escalate into major losses. If these risks are not properly understood and priced, it is the insurer’s profitability which is impacted.

And yet, while insurers have gained access to increasing levels of data to help measure risk, for many, there are still issues with measuring the human element. The lack of data in this area means insurers are missing critical insights. Today, companies such as SafetyCulture, who have already gathered extensive data related to on-site risk management, are well positioned to fill this gap.

Tracing losses back to the insurance blind spot

A lot of companies are able to scrape free data from the internet. Enhanced data about physical risks, such as flood risk, is becoming widely available. In-house risk scientists enable insurance companies to gain deeper insights from their own data than has ever been possible before. The ability of techniques such as Machine Learning and the rapidly evolving discipline of Artificial Intelligence is being heralded as a major new opportunity for highly granular risk pricing and selection.

However, whether it’s a building catching fire or a person falling, the majority of insured losses have causes that can be traced back to human error. This is a blind spot for insurers. There is limited data available for insurers to gain visibility into employee behaviours within the companies they insure. Without imposing extensive, and often ineffective manual surveys, it has traditionally been very hard for an insurer to measure, or even identify, whether there is a culture of risk awareness and mitigation.

The consequences can be serious. Property damage is one cause of insurance loss, but claims on Employers Liability, (or Workers Compensation as it is known in the US) resulting from injury to employees is also significant.

In the US for example, the cost of catastrophic injury claims is increasing rapidly. Some individual claims now exceed $10 million [1]. A recent study showed that almost half (44%) of such claims are from people falling, or being hit by objects or machinery. The number of claims for both can be significantly reduced through a culture of risk awareness.

Insurers are recognising this. Much of the focus on innovation in recent years has been on the emergence of new companies providing deep and meaningful data. As insurers continue to step up their efforts of gaining valuable insight into what was previously the unknown, we can expect to see much more collaboration with companies who are able to facilitate this.

Enabling a positive culture to risk avoidance

Almost every major industrial loss in the past few decades has resulted in regulatory changes to the application of new health and safety standards. And yet, while new regulations are put in place to reduce the likelihood of a repeat, backed up by fines for non-compliance to focus awareness on the new rules, the rigour with which these standards are observed still varies between companies. As such, it is very difficult to measure.

One method is to perform periodic on-site surveys which, while helping insurers to understand the risk profile of the companies they are insuring, tend to have significant limitation for underwriting. For example, engineering loss surveys are effective at picking up major problems, but do not adequately identify whether their customers are systematically and reliably complying to safety standards.

The most effective protection against avoidable loss is a positive culture towards risk by the people working on sites, in buildings, on ships or wherever the risks are present. This can be defined by the attitude of individuals, supported at the top level through an emphasis on providing the best tools, the right training, and incentivising good behaviour. When people realise the full benefits of looking out for their own safety, and that of their fellow workers, risk management becomes a priority across all levels of the company, and accidents and damage are reduced.

Insurance underwriters are increasingly keen to identify the companies that are actively introducing measures to reduce accidents and damage, but until recently have had only limited ways to do this in a systematic way.

There has been much discussion about the potential for linking up industrial companies with their insurers using widely deployed sensors and IoT (Internet of Things). We are starting to see large insurers invest in, or even buy, organisations that provide such technology. However, although sensors have a role to play, they merely measure what is taking place.

The emphasis must be on risk data that can be collected and interpreted in a way that directly informs preventative measures. If data is collected and presented in a way that directly points to actions that need to be taken, significant problems can be identified and mitigated before accidents occur. The focus needs to be on “actionable data” that will measure risk, but also inspires employees to actively engage in reducing that risk. Companies that are using an active approach to risk management will see the benefits.

Mobile inspection solutions, such as iAuditor by SafetyCulture, have achieved exactly this by motivating good safety practices across companies, leading to lower accidents, damage and loss to the benefit of both employees and insurers. Through the provision of a simple, easy-to-use mobile platform for employees to quickly and regularly perform safety inspections with, companies have not only gained access to data and analytics which helps them to identify risk, but have also established strong risk-aware cultures which are reinforced by employee empowerment.

Through the use of iAuditor, the focus has been on developing mutually beneficial relationships and enabling strong safety practices from the ground up.

Incentivising the risk management process

Insurers fully understand the benefits of helping their clients to actively implement measures to reduce their loss potential. Risk management bursaries, provided by insurers to selected clients as a contribution towards the costs of introducing new processes or equipment to reduce risk for certain critical activities, are nothing new. There are, however, still challenges for insurers when looking for ways to create incentives to reduce risk, such as limited budgets and a reluctance to sharing data.

And yet insurers in other lines of business are already finding ways to incentivise their policyholders to lower their personal risk. The use of telematics (or the “black box”) has, for example now become popular in motor as a way of monitoring driving behaviour and rewarding good habits.

In other cases, health insurer Vitality Life is growing its business by offering rewards, and a lower rate of insurance renewal premiums, in return for proof that its policyholders are leading active healthy lives. Wearable devices are also being considered as an option for reducing workers compensation losses by major commercial insurers such as AIG.

Programs such as these have helped to promote positive cultures within participating audiences, the result of which being reduced risk for the insurers and companies that undertake them.

iAuditor, by driving actionable data and positive cultural changes towards risk, is the next evolution of this. Contact us today if you would like to know more.


About the author

Matthew Grant started his career assessing risk management compliance in the oil, gas, chemical, nuclear and transport sectors.He subsquently spent over 25 years driving the growth in the use of analytics and data for insurance companies worldwide. He introduced catastrophe modelling company, RMS to Europe in 1996 and served on the Executive Committee running global sales and marketing.

Today he works with the CEOs and executive teams of many of the best known, and fastest growing data and analytics companies servicing the insurance market. He provides strategic support for market definition, sales, marketing communication and investment. Matthew is the founder of Abernite and a partner with Instech London, one of the leading Insurtech communities in Europe. He writes and talks regularly on topics related to innovation and use of analytics in insurance.

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