United Supermarkets’ insurance claims costs were soaring. Officials with the Texas-based regional grocery chain understood the need for full-time risk management professionals. But the exorbitant expense of having an on-staff risk management department seemed as prohibitive as the rising amount of insurance claims it was dealing with.
United felt the expense paying for the tasks of assessing and avoiding risk, preventing losses, transferring those risks and insuring against loss might be better spent with superior results if it were outsourced.
“Both the aggregate number of insurance claims and their total amount were more than they anticipated,” says Frank Dutton, assistant to the CEO for McQuery Henry Bowles Troy, LLP, an outsourcing risk management consulting and advocacy firm based in Dallas, Texas, which United tapped to serve as its risk management advocate. “They recognized soon enough that their abilities to manage these risks, insure against them effectively and deal with claims disputes was beyond their internal capabilities.”
“We’re just a mid-sized regional grocer,” says Suzanne Sales, safety manager for United. “Addressing these problems in-house was just too overwhelming a task.”
Who’s Working For Whom?
Prior to its relationship with MHBT, United was carrying large deductible policies against losses arising from workman’s comp, customer liability, theft, and other public exposure issues. And though such policies do come with lower premiums, in the event they need to be used, “the policyholder ends up being self-insured due to the large amount of money that has to be paid in order to settle each individual claim,” says MHBT’s Dutton. “Add to that the additional expense involved in disputing claims, and we could tell that United was at a financial disadvantage when it came to risk management.”
Sales says the grocer originally turned to its insurance carriers for suggestions. “But their help was limited since they’re in the business of writing policies at the direction of their clients, not helping us find the right sort of coverage. We were pretty much on our own,” she says.
It became clear that United was in dire need of an advocate with insurance firms to select the right carriers as well as help during the dispute process when claims were filed. This advocacy included workman’s comp issues.
First Stop Bleeding. Then Get Healthy
MHBT’s first step was to assess United’s loss risks, then prepare data outlining those risks for assessment and interpretation. The next step involved MHBT’s sharing its experience in risk cost containment with the grocery chain. The supplier made that interpretation “very simple” for United’s executives. “If you visualize a pie that’s the sum of aggregate losses, it’s easier to focus on each individual piece. First you explore ways to moderately reduce each piece’s size without compromising coverage. Then we put the pie back together and see what the sum total savings are,” says MHBT’s Dutton. “This isn’t a one-time event; but, rather, it’s been ongoing since both the nature of the insurance industry as well as claims that are filed against policyholders always change.”
For example, the inexperience of United in disputing claims ended up costing more, on top of its high deductibles. By having MHBT’s experienced advocacy, the savings outweigh the expense since Dutton anticipates fewer claimants will receive a judgment against United.
“Now, our insurance carriers are aware that we have an experienced advocate,” says Sales. “So they’re more responsive and behave more responsibly when issues arise that we must work through together.”
Another example of cost savings comes from assessing United’s insurance relationships. Reducing the deductibles in policies covering areas of less risk also translates into greater savings and lower overall overhead.
MHBT’s relationship with United has expanded; now its professionals make all of the grocer’s on-site OSHA inspections. This is a money saver since their experience in such issues creates clear standards that can be used in future worker’s comp disputes. If a company has acceptable standards that are validated, the percentage of successful worker’s comp claims typically is reduced.
This particular outsourcing relationship has developed into more than the typical supplier-buyer relationship. “We see them as part of our extended family. It’s more like a partnership,” says Sales.
“Most of our risk management services begin as supplier relationships based on a flat fee,” says MHBT’s Dutton. “Occasionally, they involve bonus plans based on outlined goals that we meet. Our relationship with United was the former. But we’ve saved them a lot of money and, not long ago, they wrote us a nice bonus check that we didn’t ask for.”
“Obviously, our CFO’s decision to do that certainly confirms that MHBT is doing a wonderful job for us. I know they’ve made my job a lot easier,” says Sales.
Lessons from the Outsourcing Journal:
- When it comes to loss prevention, look for a partner who has a working interest in your success. Insurance companies are about their own profit and loss. Few of them have the means of finding ways to save money on your coverages.
- The best relationships occur when both parties share the same results-oriented goals and parallel philosophies on what makes a good working partnership.
- An experienced advocate can cut insurance costs because the insurance companies tend to act more reasonably when they know an experienced professional is sitting on either end of the table.