Business owners are taking advantage of the falling premiums that have resulted from the current soft insurance market, but their cost-cutting exuberance may be putting their companies in danger.
A soft insurance market is generally defined by declining premiums coupled with higher limits, liberal terms, broader endorsements and more of an open-mindedness in the insurance community.
“During soft markets business owners and executives get so caught up in the price reductions that they sometimes overlook the real core of their insurance programs coverage,” says Karen Miller, president of Royal Marine Insurance Group (RMIG).
If the coverage is not right or does not fit particular business exposures and risks, then what good does it accomplish if the business is underinsured or uninsured?
Smart Business spoke to Miller about how businesses should approach the soft market.
How can you take advantage of a soft market while preparing for a hard market to return?
While premium levels are very competitive with insurance carriers, you should invest that savings to improve operations that affect future costs of risk. Use those funds for expenditures in your plant, property and equipment that will facilitate a safe environment. Upgrade protective safety equipment or consider making some of those improvements that were not otherwise affordable such as installing in-rack sprinklers or reviewing your general office safety environment.
Align yourself with the right insurance carrier and establish a sound working relationship. When the market changes, having a solid relationship with your insurance company becomes a good investment. When the market hardens, they’ll be in a position to work with you because they have a comfort level with your business. Bottom line; don’t change a carrier frequently because of price.
Require your agents/brokers to provide their strategies, which outline the services they will provide. Then, when the market hardens you can keep them on task. Otherwise, they may not work too hard to obtain increases in commissions and/or slack off on providing you the service you deserve.
Has the economic downturn affected insurance premiums?
The recent downturn may have affected you and your business through decreased revenues, payroll freezes or layoffs. All of these impact your insurance portfolio and the premiums you pay. If your business is slowing there are some things you can do to make certain that you are not overpaying while still ensuring that your company is properly protected.
First, only sacrifice coverage if absolutely necessary! We have seen it happen businesses are giving up coverage to save on premium only to have it come back and hit hard when they experience the pain of an uncovered or underinsured loss.
So look at coverage first. That is what you are paying for protection! If you do not have the capital or the balance sheet to support an underinsured or uninsured loss then do not sacrifice on coverage. Borrowing capital these days is extremely difficult, so options will be limited at best.
What can businesses do to save money on insurance?
Here are some areas to address to potentially save your company money at any time during the policy term:
- Identify potential hazards and transfer, eliminate or manage the exposures.
- Determine what has created losses; analyze this data.
- Establish a corporate safety culture by implementing a program to reduce or eliminate future losses.
By taking a look at each of these areas, you will discover what coverage issues are important to your business. Also, you’ll learn what you are doing well and not so well in terms of reducing risk, which ultimately turns into cost. The real benefit here is that you will develop a better understanding of your risks.
What should be reviewed or considered when transferring risk to an insurance carrier?
For property insurance coverage:
- Are there property coverage areas whereby you can self-insure certain exposures or coverages?
- Review the economics of utilizing higher deductibles.
- Make sure you are using proper values backed up by accurate property appraisals, based on proper square footage.
- Do you have the proper construction classification assigned to properties?
- Do you have the proper fire protection equipment classification for each property?
For general liability coverage:
- Review certificate of insurance retention procedure relative to risk transfer.
- Can you utilize property damage deductibles? What about other deductibles?
- Review your rating basis payroll versus sales rating basis.
- What about the composite rating?
- Review classifications and exposures.
For automobile-related coverage:
- Establish a fleet safety program and/or defensive driver programs.
- Utilize higher deductibles.
- Self-insure collision and other than collision it’s all about economics.
- Review vehicle classifications for changes and/or accuracy.
- Review rental car policy, including all non-owned vehicles.
For workers compensation coverage:
- Review experience modification.
- Evaluate use of standard premium, retro basis versus payroll basis.
- Review classifications and codes, and review payroll per classification.
- Dividend programs, retrospective and retention programs.
Do your due diligence and have your program reviewed thoroughly. Reviewing your business risks and managing insurance to mitigate losses is a guarantee to save your business money, one way or the other.
Karen Miller is the president of Royal Marine Insurance Group. Reach her at (305) 477-3755 or Karen@rmig.us.