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to Articles list Improve coverage and cut expenses Nine Ways to Save on Business Insurance Costs ByJudy A. Jacobs If you've been buying business insurance for the past seven years, you know premium costs were "soft." Even with coverage improvements, the overall expense often remained about the same. A market with highly competitive pricing taught buyers to quote their insurance programs regularly, even if it meant changing agents and carriers on an annual basis. This "cost control" technique worked…in the recent past. Now, the insurance markets are firming up. Pricing are rising and some carriers are selecting certain accounts for "non-renewal." Prudent insurance buyers develop a strategy for controlling business insurance costs in the same way they reduce other expenses. Here are nine cost-effective ways to review a business insurance program with the objective of getting the coverage needed to protect business assets at the right price. 1. Self-insure by using deductibles creatively. Insurance is one of several techniques for reducing risk. Self-insurance or risk retention is another. For example, many large companies self-insure their healthcare programs. Deductibles deserve serious consideration since premiums drop as deductibles rise. This should be looked at carefully since savings vary, depending on the line of coverage and individual claims history. A deductible is nothing more than self-insuring a portion of the risk. It's based on what a company decides it can afford. Since claim frequency typically has greater impact on premiums than loss severity, using a deductible to reduce claim frequency can pay multiple dividends. By opting for a higher deductible, a buyer may choose to create a fund with a portion of the savings to cover future losses. 2. Find a carrier that understands your industry and negotiate a long-term commitment. There was a time when businesses stayed with insurance carriers for years, sometimes even decades. Then it became popular to "shop" insurance as premiums declined, and some carriers bought their place at the table by slashing rates. This led to viewing insurance more as a commodity, a product that comes off the shelf with all brands just about the same. A more prudent approach is to find a carrier that understands your type of business, and negotiate a long-term commitment. Three- and sometimes five-year contracts are available. Building a relationship creates a comfort level with a carrier that can be beneficial over time. 3. Take loss control seriously. There is no way to avoid the fact that losses drive rates. If you have a high number of losses that the carrier deems the result of inadequate loss prevention, premiums will be affected. Programs aimed at identifying potential losses and correcting them have a positive impact on insurance costs. Investigating each loss to identify the causes (not to assess blame) and then making the necessary corrections produce cost savings. A commitment to invest time in loss control can reduce your insurance costs. 4. Document relationships with vendors. The day has passed when most business can be done on a handshake or a verbal agreement. It's good business to have written contracts in place. Whether it's a cleaning contractor or a computer services company, request Certificates of Insurance and have hold harmless agreements in place. These techniques can reduce your liability and, as a result, eliminate unnecessary claims—claims that eventually are translated into higher insurance bills. 5. Communicate all changes in operations. Few businesses are static today. Computer equipment, for example, is replaced regularly, and new computer and peripherals are added. Changes in the operation of a business can have an impact on premiums. Notifying the insurance agent when they take place is preferable to waiting for an insurance review or audit. 6. Review workers' compensation reserving and reporting practices. For every dollar in paid or reserved claims, the cost of workers' compensation increases by $1.50, since the premiums are driven by a company’s track record. Reviewing reporting practices can determine if classifications are correct. If not, it's quite possible that a claim is being charged to the wrong employee group. Also, when certain types of injuries occur, insurance carriers estimate the overall cost of the claim and set aside or "reserve" funds to cover the cost. It's not uncommon for a review to uncover that a carrier is continuing to reserve funds for cases that have long been closed, or is setting aside excessive amounts for a claim. By removing or changing reserves, premiums are reduced. It's important to remember that losses are particularly costly because they affect premiums for three years. 7. Take advantage of insurance company expertise. Insurance companies employ loss control engineers who have expertise in helping insureds reduce and minimize the possibility of loss. If you have an insurance carrier that understands your industry, the loss control experts can be particularly helpful, especially in meeting OSHA and other specific requirements. If you want help, ask your agent. Most insurance carriers provide this service at no additional cost. 8. Screen new hires carefully. At a time when employees are in short supply, companies tend to be less thorough in their screening. The questionable employee benefits from this situation. Past performance can be a good indication of future behavior. Whether it's resume accuracy, job competence, a police record, or workers' compensation claims, you want to know the people you are hiring. Employing the wrong people is giving your competitors an unnecessary advantage. 9. Train employees in safety. Every company, large or small, can benefit from a continuing safety program, one that starts with a safety committee that is charged with the responsibility of helping employees attain "zero injuries." While management must make a commitment to safety, it's the safety committee that is given the authority and responsibility for creating the safest possible work environment. This sends a message to all employees that the company does not tolerate unsafe acts and that it is committed to creating conditions that make the workplace safe for everyone. Fewer losses translate into lower workers' compensation costs and higher morale. Insurance is a means of transferring risk from a business to an insurance carrier, and the premium is the price for having the insurer assume responsibility. Unfortunately, too many insureds view this process as one in which they abdicate virtually all responsibility. Insuring a business, a home, or a life is a matter of protecting assets. In the case of a business, no owner or manager would consider handing over responsibility for a company's total assets to anyone else. Insurance should be viewed the same way. The insurer is a partner, helping to shoulder part of the risk. But it's still in a company's best interest to do everything possible to position itself in such a way that the insurer views it as a very good risk. When this happens, insurance costs go down and everyone benefits. Judy Jacobs is sales manager at Mosinee Insurance Agency, Inc., Mosinee, Wisconsin. She has been in the insurance field for 25 years. Back to Articles list |
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