The total cost of risk in social housing
Prevention, as the saying goes, is often better than cure. And while traditional insurance can help organisations to bear the costs of losses – and act as a partial “cure” – it does not necessarily address other, often hidden, costs that stem from an insured event. Nor does insurance necessarily help to mitigate risks and prevent losses occurring in the first place. This is where an understanding of the Total Cost of Risk can help organisations to reduce their loss exposure and associated costs, experts say.
Beyond the insured loss
“When you are looking at the impact of a loss, it is important to get a handle on the secondary and tertiary impacts that stem from an insured event”, explains Peter Berring, founder and managing partner of Overark.
“If a housing association is hit by a loss that affects a number of dwellings, for example, repair to damage likely will be insured. But other losses, such as the cost of temporarily re-homing residents, may not,” he says. “Adopting a risk-led approach gives you the ability to better manage your risks, reduce the number of loss incidents and reduce those additional costs – not just the insurance premium.”
Loss Prevention and Mitigation
“In the case of housing associations, a large volume of claims falls beneath the deductible”, Peter states. “And so, those losses go into a maintenance budget and a lack of visibility can mean that potential recoveries from third parties are missed.”
“A risk-led approach, however, helps promote a more proactive approach to loss prevention and loss mitigation, and also gives much better control over risk costs,” he continues. “Once you take a self-insured retention, the premiums you pay become far more stable. And you buy insurance for the catastrophic exposures and unexpected losses.”
Protection from insurance market cycles
“Having a good idea of total cost of risk, and a programme largely defined by your own risks and not outside forces, can protect an organisation from the vagaries of insurance market forces”, says Huw Thomas, a consultant for Overark. “Given that for every £1 paid by an insurer a housing association will pay around £1.40 in premium, it makes sense to retain predictable losses and have good visibility of them in order to better mitigate the risks, reduce costs and improve efficiency.”
Incentives for everyone to get this right
“When a housing association’s executive team really buys into this total-cost-of-risk approach, it typically offers greater support to both risk management and finance functions to make it all work.
And Overark can provide support in terms of training and technical support”, Huw adds.
“There is a real incentive for all staff to take this approach when they can see it saves money. And employees can be given targets and incentives based around specific priorities and areas of performance to help reduce the incidence and costs of losses”.