When Iâ€™m working with a new client that is struggling with claims problems â€“ usually related to workers comp or business auto, weâ€™ll talk about whatâ€™s causing the losses.Â Iâ€™ll often hear: â€śwell, theyâ€™re just accidents, they just happen, itâ€™s nobodyâ€™s faultâ€ť; but actually claims donâ€™t â€śjust happenâ€ť, thereâ€™s a reason why they happen in almost all circumstances.Â That’s when we start to look to Root Cause Analysis for answers.
In fact, when management uses the explanation that itâ€™s â€śjust an accidentâ€ť, I believe that thereâ€™s a real problem of not taking ownership which only compounds the issues.Â So what we try and do is run a Root Cause Analysis on a handful of claims to dispel the myth that itâ€™s â€śjust an accidentâ€ť and get to the literal â€śrootâ€ť of the problem.Â Root Cause analysis is a form of problem solving so the purpose of drilling down on the causation of a claim or loss is not to assign blame, but rather to alter the series of events which lead to the loss in the future.
A common and simple methodology for carrying out a Root Cause Analysis is the â€ś5-Whysâ€ť.Â The 5 whys may seem like an annoying child that just keeps asking â€śwhyâ€ť intent on driving us crazy (like many kids do); but itâ€™s a deceptively simple way to get to the root of many claims problems.
Hereâ€™s an example of one we conducted with a client in a food manufacturing business.Â An employee slipped and fell, injuring their lower back â€“ one of the costliest types of claims that can occur.Â Preventing this type of claim from occurring again was very important, so we asked the 5 whys:
- Why did the employee slip and fall? Because there was vegetable oil on the cement floor.
- Why was there vegetable oil on the floor? Because the 275 gallon bulk containerâ€™s spigot dripped.
- Why was the spigot dripping? Because when workers fill their ingredient buckets full of oil they donâ€™t turn the valve off tightly enough.
- Why donâ€™t they shut the valve off tightly? Because the valve/spigot is faulty and without a wrench itâ€™s difficult to turn.
- Why is the spigot faulty? Because they all are, they come from the manufacturer that way.
The last answer of course was a bit disheartening to hear because no simple fix could be made, but it led us to what was going on, and how this was an ongoing problem which would have continued unless we started asking questions.
A few simple solutions can be implemented to reduce the occurrence of oil dripping:
- The client could change manufacturers or threaten a switch unless the manufacturer fixed the problem with the spigot.
- A spill containment bin could be placed under the oil container to catch any possible spills.
- The oil container could be moved closer to the production area so it wasnâ€™t located near a high foot traffic area.
- The maintenance department could refit the factory spigot with one that worked
- And failing that, maintenance could also make frequent stops by that area during the day to apply a drying agent and clean up any spills.
The insured ultimately combined some of these actions â€“ they insisted that the manufacturer change the spigot configuration (which they did) and they placed all bulk bins on top of spill containment bins.Â Maintenance was asked to make more frequent clean ups in the area of the oil bins as well to clean up an remaining spills that did occur and workers were asked to please clean up minor spills and to call for maintenance when larger spills happened.
As a result of these proactive risk management actions there hasnâ€™t been a re-occurrence of a slip and fall in this area because there is no longer oil on the floor.Â Looking at this from a financial perspective, letâ€™s assume that a slip and fall soft tissue claim is going to run into at least $150,000 of claim costs which the manufacturerâ€™s insurance company pays.Â There is at least 1.25 times that claim payment in indirect costs like lost productivity, increase in insurance premiums, retraining costs, slow downs, etc. which are coming out of the employerâ€™s pocket that round up to $188,000!Â The spill containments cost the firm about $1,300 and extra cleaning time and supplies consumed during the year amount to about $2,500; so the total investment was $3,800.Â Preventing just one loss results in about a 50:1 Return on Investment (just on indirect costs â€“ not to mention the human costs saved); not a bad ROI in my opinion!
Root Cause Analysis not only helps prevent costly claims from reoccurring, but by quantifying the financial impact or ROI of risk control investments you gain a greater understanding of how the risk management process can help build your firmâ€™s profitability and enterprise value.
For more information on getting to the root of your insurance problems, contact us today!