Influencing insurance premiums Featured

8:00pm EDT June 29, 2005

You've worked diligently with your insurance agent to analyze your insurance needs and the best way to meet those needs. You're confident you've selected the right protection for your business and the right insurance company to partner with.

But are you getting that protection at the best value? Believe it or not, you play a big role in determining the premium you pay for your coverage.

When it comes down to it, the insurance company's underwriter (the person who makes the decision about insuring a risk) is a major factor in determining the price of your insurance policy. In the most simplistic view, the underwriter either accepts or rejects the application.

But there's more to it. The underwriter also determines the price to charge if the application is accepted. And although much of the pricing equation is decided by the company's actuaries, underwriters still wield rather large pens when it comes to determining the discretionary credits or debits that can be applied to a policy.

The amount of credit or debit varies among insurance companies and even by state. In some cases, an underwriter could apply a credit of up to 50 percent. So what influences an underwriter's pricing decision? A variety of things, including the existence and control of common property hazards.

In the insurance business, a hazard is defined as something that increases the chance of loss. There are common hazards that exist in most businesses that you should be aware of. And if they're so common, they'll probably cause the underwriter to raise your insurance premiums, right? Perhaps.

But you have the ability to control these hazards, and in the process make underwriters more apt to apply credits and reduce your premium.

Common hazards are easy to control

Let's look at a few common hazards and what you can do to control them.

* Management attitude. Your attitude is one of the most important common hazards. Simply put, if you invest in private fire protection, are attentive to business needs (preventive maintenance on machinery) and have an overall positive attitude about safety, the underwriter will consider this common hazard controlled.

* Heating systems. The underwriter will want to know the equipment has been properly installed and maintained (licensed HVAC professionals preferred) and that you maintain proper insulation and adequate clearance from combustible materials.

* Electrical systems. Make sure the service (wires, breakers and fuses) is sufficient for the electrical load and is updated as you add equipment and make other changes.

* Smoking. Smoking is a significant cause of accidental fires. At the very least, smoking should be restricted to designated areas, with "no smoking" signs posted in nondesignated areas. Provide self-closing, fire-resistant ashtrays in designated areas. Even better, outlaw smoking completely, a move sure to make the underwriter happy.

* Housekeeping. Something as elementary as housekeeping makes a big difference to an underwriter. Why? Underwriters are trained to equate housekeeping with management attitude. If your place is a mess, most underwriters believe your management style might be, too. Dispose of oily rags and other refuse. Sweep up at the end of the day. Empty waste cans and other trash receptacles on a regular basis. Polish the floor and clean the bathroom. Simple stuff, but it could save you money.

So, what's the moral of the story? You can control your insurance premiums. Now go buy that fire extinguisher and sweep up the shop.

Reach Tony Falcone, manager, underwriting practices group, at (330) 887-0133 or In business for more than 156 years, Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product it offers is peace of mind and our promise of protection is supported by a commitment to service excellence. For more information, visit