Prevention is Better than Cure:
Insurance Company's View on Preventive Law
by Paivi Nygren
1. How we got involved in Preventive Law and where we are now
I work in the Liability Insurance Department of Sampo Industrial which is a provider of risk management and insurance services for several industries demanding special expertise. We concentrate on the following selected industries: pulp and paper, power generation, chemicals, food and drink, construction, metal manufacturing, transport and electronics / telecommunications. We form a part of the Sampo Group which is Finland's largest financial group.
We provide services to our European clients from our offices in Scandinavia, the UK, Holland, Belgium, Germany, Poland, the Baltic countries, St. Petersburg and Moscow. Moreover, our Global Service Network covers a further 70 counties world-wide including all the major industrialized markets.
We are involved in risk management and safety work in co-operation with our clients, totaling over 8 500 working days annually. Our personnel includes 400 specialists from different business areas.
Our insurance operations started at the end of the 19th century when a group of Finnish industrial operators established their own mutual insurance company. That is why we have always had a strong emphasis on risk management. Loss prevention is naturally more important to our clients than merely the insurance compensation. Even the best insurance solutions will not help if our client's reputation is destroyed. We work closely with our clients to prevent and minimize their risks.
For more than 20 years we have done risk surveys mainly for our clients, but also for other companies. For the last ten years these services have been offered for a fee. Our insurance process begins with an in-depth risk survey of our client's business operations. The main risk areas are property, loss of profits and liability risks. Nowadays, extensive surveys are not as common as when we started. On the other hand, the liability risk surveys we do today are more specialized than ten years ago. Our liability risk survey usually comprises all liability areas, e.g. public and product liability, environmental liability, directors' and officers' liability, employer's liability and contractual liability. The survey is conducted in co-operation with the client. Through discussions with the client's key personnel and analysis of relevant documents we try to figure out our client's major liability risks. The client receives a risk report where the bases of the risks are explained and major risks are identified. The report also contains recommendations for measures to be taken to minimize the risks. Today we have also a less time consuming risk survey method in use. Liability-ASKELMA® is a computer aided survey tool developed by us which contains approximately 100 questions which we go through with our client's key personnel during one working day. A report including diagrams and recommendations will follow.
Soon after we started our risk survey services, we noticed that there was a lot of legal risk management work to be done in companies. During the interviews with our client we had very fruitful discussions and we could give most of our comments and recommendations right away. Also a report was written and it was usually formally delivered to the client in a special meeting or a half day seminar with the client's directors and other key persons. We got our message through very well. Although we did good work and the clients were happy, the method was slow, and we had also a lot of other clients who needed help.
The surveys alone were not enough. We had to develop new and quicker ways to get our message through. That's why we started our half a day Contractual Risk Management seminars. The program consisted of 4-5 lectures given by company lawyers, directors, attorneys and other trustworthy people who could convince our clients that legal risk management is very important. The seminars were a great success and the first seminar was overbooked. One client who did no register early enough said: "I can even sit on the floor if only I can come." These kind of half a day seminars on risks we think require more risk management efforts we call internally "wake-up seminars". In the seminar we tell our clients about the (new) risks they are facing and what can be done to manage them. Today the "wake-up issues" are e.g. IPR and internet related risks.
In a half day seminar you can only make your clients aware of their possible risk exposure but you can give them few tools to manage it. Our clients need a lot of tools for their tool kit. Training is one of the most efficient tools you can give. The lawyers were of course not in need of training but the sales personnel, the engineers who marketed and sold the products and also in practice made the contracts needed it badly.
That is why we started our 2-3 day workshops in 1993. The workshops are designed for business people who deal in making, negotiating and evaluating contracts but do not often have formal training in that area. The workshops are particularly suited for those making quotations and contracts, including project managers and export, sales, and project engineers. Since the workshops are designed for non-lawyers, only a couple of lawyers can be accepted to each workshop. The group is limited to 20 persons to enable efficient team work.
The workshops focus on practical issues. Instead of lectures and legalese the participants work interactively using examples from real life situations and hands-on exercises. The attendees are split into work groups which identify and solve scenario-based problems in international quotations and contracts. The case studies and exercises demonstrate the impact of gap-filling laws and contract practice on the supplier's liability exposure. They show the consequences of a delay in delivery or a defect in or lack of conformity. After the workshop the participants know why it is necessary to make "good" contracts in writing.
In addition to these "public" workshops, tailor-made workshops have also been organized for a number of clients to fit their in-house training needs. Both the public and tailor-made courses have been a success and we have got excellent feed-back.
In 1997 we also published a small handbook to help our clients to remember the basic contractual risk management issues. Translated literally from Finnish the name of the handbook is: Let's agree so - make your own rules. It contains basic info on contracts; legislation; contractual risks; liability and limitations of liability, dispute resolution and choice of law; contractual risk management; liability insurances and contractual checklists. It is widely used by our clients, and they have asked us to translate it into English so that it could be used also in their subsidiaries abroad.
A few years ago we made a survey among our course participants to find out what kind of measures were taken in their company after someone had participated in one of our courses. In many cases our courses did lead to major changes and improvement of contractual and liability matters in their company. Also more lawyers were employed by some companies.
Since 1993 we have worked closely with Ms. Helena Haapio from Lexpert Ltd. Together we have developed training services for our clients which are unique in Finland and, as we have now learned, in many other countries as well. Today we offer our training services also outside Finland. Some workshops have already been arranged for our clients' subsidiaries aboard. I wish to thank Ms. Haapio for the great work she has done over the years. She is a great inspirer and innovator and above all a magnificent person.
2. Conclusion; Nine reasons why an insurance company should be interested in Preventive Law
I have made a list of some of the benefits gained by using preventive law and risk management techniques. In addition to the first and most important reason, loss prevention, there are several other good reasons why an insurance company should be interested in Preventive Law and other methods which can help their clients to prevent and minimize losses.
Reason no 1: Prevention is better than cure
We insure liability risks. The more our client understands about his risks and how to manage them, the better for him and also for us. We have mutual interests in preventing losses and damages. Prevention is always better than cure, even if the loss is well indemnified. Money does help, but it does not solve everything, especially when lives are lost or the company's reputation as a reliable partner is destroyed.
Reason no 2: Limits insurers liability
The insurer benefits if its clients limit their liability. Our client's limitation of liability limits also our liability to pay indemnities. If the client is not liable, nor is his insurer. However, we do not encourage our clients to limit their liabilities unreasonably. Over the years we have emphasized that reasonable and well balanced risk allocation is in the best interest of both the contracting parties.
Reason no 3: Settlement of loss is easier
If a loss occurs, the settlement of loss is much easier and a much less time consuming process if the contract is clear.
Reason no 4: Customer care & long-term relationships with clients
We have always had long-term relationships with our clients. Some companies have been our clients for more than 100 years. As we insure only major industrial companies, customer satisfaction is very important to us. We would like to see our clients prosper and to be our clients also in the future.
Reason no 5: Co-evolution with clients
Learning and keeping up to date with the clients is important to every company, also to any insurance company. Only when we know our client's needs can we offer and develop insurance solutions which best meet these needs.
Reason no 6: We get underwriting info
On the basis of risk surveys etc. we get good info for underwriting purposes. If the insurer does not know enough of the risk, there is a possibility that the premium does not correspond to the risk. It is even possible that the premium might be too high.
Reason no 7: We can offer better insurance solutions
We are better prepared to insure our client's difficult risk areas after we have done a risk survey or provided training for the client. We can also recommend to the client the best, the most economical and the most effective insurance solution for each situation.
Reason no 8: Our work has PR value
We are well known for our high expertise also regarding liability and contractual matters and the services we can offer our clients. It can help when we negotiate with our potential clients.
Reason no 9: It helps us to develop new products
Our special knowledge helps us to develop new insurance products and risk management services. We can offer numerous tailor-made insurance solutions and risk management tools for our clients. We can even offer insurance solutions which only a few insurers in the world can provide.