There’s no doubt that Florida’s insurance crisis is having a chilling affect on many aspects of business, including manufacturing, contracting and real estate.
Hurricane damage, litigiousness and the slumping economy are combining to create what may become one of the biggest challenges ever faced by the insurance industry. From 1980 through the hurricanes of 2005, the U.S. suffered more than $500 billion in overall inflation-adjusted damages and costs due to extreme weather events, according to the National Climatic Data Center.
Insurance providers find themselves caught in the middle of a delicate balance. While massive claims continue to squeeze profits within the state and nationally, providers must continue to provide clients with high-level services at reasonable rates.
Smart Business spoke with Grant Connor Mehlich, producer for Hilb, Rogal & Hobbs, about the ongoing insurance crisis, and how business owners and insurance providers can work together for sustainable solutions.
What exposures are unique to manufacturing and utility contractors?
Manufacturers and utility contractors have inherent products liability exposure that must be addressed and properly covered. Utility contractors that perform services like sewer construction utilize multiple manufactured materials. These materials can present additional product liability exposure, in conjunction with the standard exposures in the construction trades. It is imperative to understand for what, where and how the insured’s final product will be used.
What crucial gaps can exist in insurance policies for manufacturers?
Let’s say Company X contracts with ABC Manufacturing to make a small plastic screw. Company X then turns around and sells the product to an airplane manufacturer, who uses the screws for a noncritical component such as the trays on the seat. If the plane were to have an accident, guess who gets thrown into the lawsuit? ABC Manufacturing.
Regardless of the fact that its product was in no means used for critical applications, ABC would still get thrown into the lawsuit due to the litigious nature of today’s business community. By law, the insurance carrier must defend the insured, if their general liability policy will respond. For this scenario, if there is a specific endorsement that excludes ‘aircraft products’ on the policy, the insured will be left alone to defend itself in court, as the general liability policy will not respond.
The legal community has been paying close attention to construction litigation. How has this impacted insurance for utility contractors?
Utility contractors such as water, sewer and conduit construction contractors have been getting sued at an alarming rate. From general contractors walking off jobs to subcontractors having inadequate limits of insurance, utility contractors need to know that they are fully covered and their general liability policy will effectively cover their exposures. Another key dynamic is the contractor’s workers’ compensation insurance. If one of their subcontractors does not carry workers’ compensation insurance and their employee gets injured, the utility contractor could be held liable.
As with manufacturers, I cannot stress how critical it is to pay attention to specific endorsements and/or having the carrier waive common exclusions.
How have insurance providers helped clients attain proper coverage at an affordable price?
While property coverage in Florida is a mess, there are still viable solutions available. Experienced insurance providers with strong relationships in a plethora of markets exist that can work with companies to generate workable insurance solutions.
Through my work as an underwriter, I’ve seen how learning and understanding specific endorsements can greatly affect the rates available to clients. The single most important dynamic for a client/provider relationship is trust. Relationships are simple when times are good. Take a look at how the provider reacts to a small claim or, more importantly, catastrophic events like our recent hurricanes.
What steps can property owners take to help reduce their insurance rates?
First, it is imperative that the company you are using has access to essentially all of the available property markets. Next would be to see where certain endorsements could apply. For example, let’s say you have heavy machinery that is bolted down (fixed) in a factory. If a specific endorsement is used, you can get a rate discount on the equipment policy, since it is considered a fixed item. Fixed items qualify for lower rates than stand-alone equipment.
Hurricane protection is another major issue to be addressed. Certain carriers are now offering credits to business owners who use impact-resistant glass and proper hurricane protection.
GRANT CONNOR MEHLICH is a producer at Hilb, Rogal & Hobbs in Tampa. Reach him at (813) 261-7982 or Grant.Mehlich@HRH.com.