YOU CAN'T INSURE EVERYTHING
Back in June 1997, we wrote about the difficulty of using loss control techniques to reduce the frequency and severity of losses resulting from unexpected events. We listed some of the reasons that accidents continue to happen, including a tendency of managers to think that they need not worry about accidents because they have insurance. "Aren't we covered for that?" is the foremost question on the lips of managers when suggestions for reducing loss are discussed. If the answer is "yes" then, "There is no room in the budget for that."
When Bridgestone/Firestone, Inc. started hearing about accidents occurring because their tires were coming apart, it is quite possible that management was advised that Products Liability insurance would respond to any Bodily Injury claims that would arise. No doubt the company had planned how to pay for those claims and the plan included insurance. "We are covered for that."
But you can't insure everything. Remember Johns-Manville? In the March-April 1994 issue of Harvard Business Review, Bill Sells, a former executive of Johns-Manville, wrote about why the company no longer existed even though there was Products Liability insurance in place to respond to claims for Bodily Injury from asbestos. Insurance did not respond to the loss of reputation that the product suffered. Mr. Sells said, "Had the company responded to the dangers of asbestosis and lung cancer with extensive medical research, assiduous communication, insistent warnings, and a rigorous dust-reduction program, it could have saved lives and would probably have saved the stockholders, the industry and, for that matter, the product." He stated that "the blunder that cost thousands of lives and destroyed an industry was a management blunder, and the blunder was denial." Even with insurance the company didn't survive. They were unable to insure a reputation that was severely damaged because they did not use techniques that could have prevented injury from occurring.
Remember ValueJet? Even though there was insurance to respond to the accident in the Everglades, and ValueJet probably suffered very little financial loss because of the crash, when stories of poor maintenance standards began to circulate there was no insurance that kept the company from going out of business.
The book is still open for Bridgestone/Firestone. Ford Motor Company survived the Pinto and Bridgestone/Firestone may survive this episode. Only time will tell. But if they do survive it won't be because they had insurance.
Back in June 1997, we suggested several things that could be done to overcome those things that made it so easy to postpone implementing strategies that would reduce the frequency and severity of losses. We hope that you have a copy of that article and will take another look at it. The one thing that we did not do was stress how important this matter is. Johns-Manville, ValueJet and Bridgestone/Firestone make it clear that the survival of your organization depends on your doing the things that are necessary to control losses.
-- Michael B. Coyle, CPCU, ARM
Vol. XIII, No. 4
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We have been through a number of competitive bidding exercises recently, with more to come at the first of the year, and there have been definite signs recently that the insurance market is hardening. It does not yet appear to involve premium increases in all coverages for all insureds, however, so close attention to renewals is strongly advised. We already have a number of "horror stories" and are expecting more, and we will try to share some of them in a future issue. Suffice it to say at this point that agents, brokers and insurers seem to be trying to get back at the consumer for the extended soft market. In this issue, we begin a two-part article on how to improve the insurance language in leases and contracts, and we report on some developing trends in employee benefits. We also discuss some recent situations where having all the "right" insurance does not make up for a lack of loss control. Finally, as a part of our ongoing effort to bring our readers news on what is happening at Aldrich & Cox, Inc., we take pleasure in announcing that Jim Hood has been elected President-Elect of the Society of Risk Management Consultants (SRMC), an organization dedicated to the promotion of truly independent risk management consulting, and Mike Coyle has been elected to the SRMC Board of Directors. They follow Charlie Cox who was SRMC President in 1989-90. --- Ed.
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