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Today there are two
certainties when shopping for almost any kind of insurance coverage; It will always
be too expensive and you never seem to have enough
when there is a loss. After the events of September 11th and a
protracted recessionary economy insurance costs have sky rocketed in virtually every
business sector.
Here are some
techniques that may help to reduce your insurance costs. Some of them can significantly lower your premium or even eliminate the need for a particular
type of coverage. Remember that the effectiveness of any risk management technique will
vary with the type of risk, size of premium and your own tolerance for risk
retention.
Losses & Loss Control
The insurance industry is
cyclical. Hard and soft markets are as certain as death and taxes.
Unfortunately the onset and duration of any new cycle is unpredictable.
During a "hard market" insurance companies are desperately trying to keep their
ratings up and stockholders happy by improving their bottom line. This
re-underwriting process requires rate increases and the culling of unprofitable
lines of business. Since the insurer is dealing with thousands of renewal
policy deadlines underwriting surgery is usually performed with a machete rather than a
scalpel.
If you are unfortunate
enough to have experienced several claims over the past two or three years you
may receive a cancellation notice instead of an offer to renew. You
will then be among the ranks of those shopping for new insurance with a "bad
loss ratio" in a "hard market". To make matters worse your new potential
companies are being swamped with thousands of business submissions at the time
when they are
re-underwriting their own book of business.
Given this information, you and
your broker must present your account in the best possible light.
Remember, the underwriter looking at your submission is buried in work and will make
his decision in a matter of minutes. The application and supporting
documentation must be complete and accurate. The claims history section of an
insurance application only asks for a date of loss, type of claim and amounts
paid. If you have had losses, include a good description of the loss and
what you have done to eliminate the cause and prevent a re-occurrence.
This alone will move you to the head of the class.
Higher Property Deductibles
An obvious maneuver
to lower your insurance cost is to raise the deductibles. Always be sure
to check the premium savings versus deductible cost before making a final
decision. The size of the deductible and it's discount credit are not
always proportionate. A one thousand dollar deductible may provide a 12%
premium credit while a five thousand dollar deductible will result in a 15%
discount. The higher amount may not be cost effective unless your property
premium is in the tens of thousands of dollars. Most small businesses do not find "mega-deductibles" to be very cost
effective.
Building Construction and Fire
Protection
A big piece of your property
insurance premium is determined by:
- the construction of the building you
occupy
- the type of
occupancy
- the age and condition of the
property
- the protection class or
effectiveness of the fire department in your area
- the existence of a sprinkler
system.
Surprisingly, an alarm system does not
usually have a
great deal of effect on your premium calculation. That does not mean you
don't have to have one. Most of the large insurers are now making an alarm
system a requirement of coverage. When buying or renting a property keep
these items in mind when making a final location choice.
Automobile Coverage
When the economy is in a tailspin I generally
counsel clients to maintain their current liability limits or even explore
higher limits. Why you ask? I have found that when others are in
financial trouble they often go looking for deep pockets to solve their
problems.
You can however, reduce auto premiums by
increasing comprehensive and collision deductibles. You can also consider
an alternative to comprehensive coverage called "fire, theft and combined
additional perils". This option can result in significant savings on
higher valued vehicles and you are generally just sacrificing your glass
coverage.
Medical payments coverage should also be
evaluated. Commercial medical rates are often disproportionately high for the
amount of coverage provided. You have the option to designate
which vehicles will have medical payment coverage. Questions to ask when
evaluating this coverage item are:
- Are the drivers and passengers in the vehicle
covered under my workmans compensation policy when they are injured?
- Are members of the general public in the
vehicle on a regular basis?
- Are the passengers covered under any other
accident or major medial policy?
- Is this an essential coverage
for my insurance portfolio?
Bad drivers equal bad rates.
Make it clear to your employees that their tickets and at fault accidents cost
you money. Always call your agent for a driving record before hiring a new
employee.
Liability Exposures
Liability insurance is the stickiest and most
uncertain line of coverage for your insurance carrier to write. Casualty
losses for other lines of insurance
are far more statistically predictable. If your building burns
down the dollar loss is easily determined but when a customer is injured on your
premises your
financial fate is often in the hands of a jury.
Insurance companies generally charge premiums for specific
activities conducted by your business. If your business offers a variety
of goods and services be sure to compare the premiums being charged to your
commensurate income. Very often the existence of one single exposure will
prevent access to the most competitive market. For example, ABC
Equestrian Center offers boarding, training, riding instruction and guided trail
rides. They gross $450,000 per year of which $25,000 is generated by the
trail rides. Their renewal premium increased from $8,000 to $21,000
because of the trail ride exposure and the limited number of insurers offering
that type of coverage. The renewal premium could be written through
another provider for $11,000 if the trail riding was discontinued.
If the equestrian facility eliminated the rental
activity entirely they would probably profit by the lower premium and reduced
operating costs. This risk management technique is called Avoidance.
If ABC were to subcontract the trail rides to an insured sub-contactor they
could continue to offer the service and still obtain the lower premium.
This technique is referred to as Transference.
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