RISKVUE ARCHIVE | QUESTIONS OF THE MONTH

Setting Up a Loss Allocation Program

Dear riskVue: I am the new risk manager for a multi-location roofing company with poor loss experience. Recently I heard that loss allocation is a good method of encouraging loss control efforts. Are there any guidelines for setting up such a program? Have any companies done this and found it to be effective?

A Loss Allocation program is a good way to encourage loss control & safety. While there are no hard & fast rules in setting up your program, most that I have experience with include a cap on losses so a single large loss does not terminally affect a region or location.

I have seen both retrospective programs that charge prior losses to a location and others that use loss factors to apply current program costs. An expense, besides the premiums, to include in the program would be the departmental(risk & safety) costs since they are a part of the total cost of risk.

Once the locations realize that their actions directly impact their costs, and bottom line, they soon come around. Good luck.

Dave Riggs, CRM, ARM, RF

riskVue | The webzine for risk management professionals
January 2007