Tips for Reducing Your Total Cost of Risk

The oil and gas industry is one of the most dangerous in the country, if not the world, according to data from OSHA. Unfortunately, that means the risk of workplace injuries – and associated insurance claims – is ever present. As companies look for ways to keep their employees safe, decrease their risk and control costs, it’s important to focus on the TCOR (Total Cost of Risk) which recognizes that a claim has more impact on a company’s bottom line than just the insurance premium and the cost of the claim.

TCOR is a quantifiable number that can be identified and reduced. It is the total cost of your company’s deductibles, uninsured losses, risk control costs and related ancillary costs, which may include things like claims reporting, investigations and fines, additional training and loss of reputation. By recognizing and understanding these costs, companies can establish and implement risk management strategies to reduce them and their TCOR.

There are three main areas to focus on when looking to lower your TCOR:

Claims Data

The mass amount of data collected about a company’s claims can be invaluable – if you know what to do with it. This data can give you a glimpse into the biggest risks your company faces. By analyzing the type, severity and frequency of your claims, you can determine the problem areas and make smarter decisions to mitigate those risks. For example, let’s say that in mining your claims data from the last five years you notice a high rate of workers’ compensation claims related to back injuries. With that information in hand, you can then take steps to correct the problem, like conducting specific training programs to teach employees the proper ways to lift heavy materials.

If the new training program doesn’t seem to be reducing the number of claims related to back injuries, perhaps you need to redesign the job itself so that lifting becomes less hazardous. Or maybe you have the wrong employees handling the lifting. Doctors offer a kinetics test that assesses employees’ physical strengths and weaknesses so that you can determine the job for which they are best suited.

Data can help you make multiple decisions like these that can improve your business. At the same time, the constant monitoring and analyzing can be time consuming. Consider working with your insurance broker, who can analyze this data for you and help identify the proper steps to reduce the severity or frequency of these claims, thereby positively impacting your bottom line.

Loss Control

Loss control visits are typically done by your insurance carrier, who comes to your facility or jobsite to evaluate your safety programs and level of risk. It’s a good policy to involve your broker prior to these visits so he can seek out and help you mitigate any risks likely to stand out to the carrier.

Essentially, you want a broker who will – either personally or via his loss control specialists – regularly perform his own loss control visits. He should look at things like whether all employees are wearing the necessary protective gear, how well employees are following safety rules and what your organization is doing to go above and beyond in terms of safety. Doing so allows you to lower the number of accidents and injuries, thereby minimizing the cost of insurance and the loss of productivity that such incidents cause. Investing in ongoing safety improvements pays off – studies have shown that for every $1 invested in injury prevention, you will see an ROI (Return on Investment) between $2 and $6.

Indemnity Clauses in E&P Contracts

Because the oil and gas industry can be so dangerous, exploration and production (E&P) companies like to spread the risk out as much as possible with their subcontractors. That’s why indemnity is typically handled knock-for-knock, which is unique to the industry. Knock-for-knock indemnity is reciprocal in nature – each party accepts risk based on ownership of property and personnel rather than on fault.

Indemnity clauses must be clear and unambiguous. When reviewing a contract, be sure that the wording expressly states the liabilities and damages that the parties intend to cover. For example, contracts need to include some verbiage around additional insurance endorsements for oilfield service contractors. The wrong wording can cost your company millions of dollars. I’ve seen it.

Companies often have hundreds of contracts out there at a time. That’s a lot of potential risk. Your first line of defense is your insurance contract – make sure you’re covered and confirm that each contract is structured correctly so that it backs up what you’ve committed to.

By understanding their TCOR and focusing on the areas outlined above, oil and gas companies can not only improve their bottom line, but also significantly mitigate their risk.

Author Profile
Senior Vice President -

Parker Rains is senior vice president of Fisher Brown Bottrell Insurance and head of the middle market business insurance firm’s Nashville regional office. Rains was recently named to Insurance Business magazine’s 2017 Young Guns list, a list of 55 top insurance professionals under the age of 35. You can reach him at or 615-761-6332.

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