Best Practices in Loss Prevention

Taking a proactive approach to identifying and preventing losses in all forms is one of the best ways companies can protect their bottom line.

The uncertain economy, regulatory changes and high shareholder expectations are causing companies to work harder than ever before to identify and prevent potential losses in every form they may take. Today's loss-prevention efforts encompass traditional concerns, such as stopping

employee or customer theft and protecting the company against natural disasters, but they also extend into unconventional areas. "Loss prevention goes beyond safety programs," says Mark Tucker, corporate risk manager for Diebold Inc., a self-service and security solutions provider in North Canton, Ohio. "It is the foundation of risk management in the organization. You need to find ways to protect assets of the corporation, protect shareholders' stake in the company and make sure the company can continue doing business in the future."

"Loss prevention has gained greater importance as more corporations embrace the discipline of risk management," says Chris Johnson, senior vice president and division manager for insurance and risk management company FM Global in Plano, Texas. Lately, organizations have discovered the importance of preserving the continuity of their production processes, protecting their people and ensuring their uninterrupted participation in the marketplace.

A proactive approach to avoiding losses is also one of the best ways for a company to reduce risk-related costs, even for insured losses. Most organizations' total cost of insuring risk depends on their claims experience. About 70 percent to 95 percent of the cost of insurance premiums varies based on loss experience, so loss-prevention activities can have a huge impact on the bottom line.

"There is much more attention on losses and their costs because all costs are extremely important to companies today," says Brad Hart, senior vice president with insurance brokerage Willis in New York City. "Companies are trying to reduce costs in all areas, and risk-related losses lead to claims that greatly affect the bottom line. Companies want to reduce claims and costs to as close to zero as possible."

Of course, not all risks are created equal. "Companies need to consider what could happen and the implications," says Johnson. Because businesses have limited resources for loss prevention, they need to prioritize activities based on the size of each risk and its importance to the company's operations.