Understanding Loss Runs
Understanding Loss Runs10.01.2016
One of the buzz words thrown around these day especially now during election season is transparency. We can learn from watching the news that addressing issues up front often leads to a better result and, as discussed here, such an approach is equally applicable to the world of insurance. You have likely been asked for “loss runs” by your insurance broker when applying for or renewing a policy. It is therefore useful if not necessary to understand what loss runs are since they are used by an insurance company to determine whether to underwrite a risk (accept or deny) and, if so, goes into the proposed rating or premium charged for the policy.
To begin with, loss runs reflect an insured’s claim history during one or more policy years with a particular insurance company. The information usually found on a “loss run” is (i) the name of the insured and claimant; (ii) the policy number and/or period; (iii) date of the claim; (iv) whether a claim is open or closed: (v) possibly a brief description of the claim; and, for purposes of this discussion, (vi) the amount paid or reserved (estimated value) by an insurance company with respect to indemnity (settlement or judgment) and expenses (such as legal expenses). Just like any computer generated report, a loss run is as accurate as the information put into it; therefore, it is necessary to make sure all the information contained is being detailed properly.
If there is a large number of claims (claim frequency) or significant monies paid out in settlement, judgment and defense costs (severity), your current or potentially future insurance company may decide not to write your risk or charge you more to do so. Faced with this prospect, it is recommended to be pro-active and transparent addressing the information contained on loss runs since the numbers themselves often do not tell the whole story. To do so, a two-prong approach working with your insurance professional to minimize the impact of adverse claim history should be considered.
First, you will likely be asked to complete a claim supplement for each claim listed on a loss run. Most insurance companies’ claim supplements are in a question format without much room for explanation. It may be beneficial to go into as much detail as possible in describing a claim on a separate piece a paper. If the claim is active, however, it is recommended to consult with counsel in preparing the claim supplement. I have seen too many claim supplements where a professional admits responsibility in some fashion and that is discovered by an adversary’s counsel coming back to haunt the insured in litigation.
Second, the claim supplement is often not enough to support your insurability. Any claim supplement or written explanation should include the “lesson learned” from the claim. Specifically, there should be a discussion of the processes and procedures put in place in order to avoid a similar situation from happening again.
Finally, one last thing bears mentioning. Just as loss runs are useful to an insurer in evaluating and pricing a risk, they can be equally useful to the professional insured. For example, you may discover trends or patterns indicating certain employees, offices, or services rendered are creating claim situations. The loss runs may also indicate you have claim frequency but not severity and, as a result, it may be more cost effective to self-insure such exposure by way of a higher deductible lowering annual insurance costs. Therefore, it also makes sense to annually request loss runs from your insurance company as part of your own risk management.
All information provided in this blog is for informational purposes only. The sources used are presumed accurate. Lancer Claims Services, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.