Business owners purchase insurance based on emotion. Actually, almost all purchases are based on emotion — people think logically but decide emotionally.
For insurance, employers reach out to people they trust — friends, relatives, golf buddies or community and business connections in the insurance industry — to discover where to turn for an insurance relationship. They also typically remain loyal, unless the owner experiences a bad loss or poor service.
As word gets around about the soft insurance market, employers need to guard against getting too price conscious.
“You are buying a service. Not only are you buying insurance to put your mind at ease so you can sleep at night, but you need a partner to work with you proactively to make your risk profile look attractive to the insurance company,” says Kerry K. Gregoire, an assistant vice president at SeibertKeck Insurance Agency.
Smart Business spoke with Gregoire about using the strong bargaining position you have now in the insurance industry to set your company up for the long term.
If business owners constantly shop their insurance, how can it backfire?
Insurance representatives and insurance companies will lose interest in quoting if a business owner shops his or her insurance annually. Most carriers today, although hungry for new business, are seeking long-term relationships and looking for loyalty, including after they’ve paid claims. They look at the whole picture, including how frequently you’ve been shopping your property and casualty insurance.
A business owner needs to be in a position of having an insurance company available and interested to quote when it’s really needed, such as a tough loss history or circumstances that drive premiums up.
Where exactly is the marketplace cycle and what is it doing for premiums?
For the past two years, we’ve been a soft market with 5 to 10 percent increases. That has moved over to flat renewals, and there are reports projecting a 5 to 15 percent decrease for 2015, depending on your risk profile. Cyber insurance, however, continues to increase because it’s new, people are getting hit with cyberattacks and the marketplace is still being tested.
No one has a crystal ball, but a typical soft market tends to hang on one to three years, depending on the outcome of catastrophic losses and market performance. The insurance market is a cycle. Educated buyers understand that eventually everything will go back up, so you don’t want to burn bridges with available insurance companies.
How would you recommend businesses negotiate renewals?
In a soft or hard market, business owners should consider bidding insurance out once every three years, and remember it’s not all about price. Make sure you aren’t losing any coverages if you switch to another insurer. Plan ahead and standardize the process for obtaining all of the necessary documents that pertain to the quoting process.
Also, limit agents who are competing; streamline the process of market selection. If you have more than a couple, agents end up approaching the same markets.
In a soft market, besides reduced or flat pricing, an insurance buyer can request more value-added services from an insurer or its representatives, such as a multiyear rate guarantee program that is contingent upon staying below a loss ratio threshold.
Plus, many insurers have been enhancing their risk management techniques and loss control resources to help customers manage their insurance costs and claim activity. Make sure you express to your agent your company philosophy — you want to self-insure or have higher deductibles for certain coverages. You can take a more proactive approach to try to prevent a claim or lessen its impact. You’ll also want to plan necessary time for loss control visits by insurers.
In the meantime, between shopping your insurance, be involved. Review your claim history so you can implement internal changes, if needed, prior to shopping. You may need to ask for quarterly loss run reports or quarterly claim review — via meetings or conference calls with the insurer — if you have claims activity. Insurers like to see that the business owner is demonstrating good risk management, which in the end controls losses and insurance costs.
Insights Business Insurance is brought to you by SeibertKeck