I can literally feel your eyeballs rolling as you mutter a “colorful” sentence or two about insurance brokers occupying the phylum right above amoebas. Before you click on, give me a paragraph or two to explain.
For those insurance buyers new to the scene a “hard” market is defined as one in which various lines of insurance experience acute price increases, coupled with limited availability. It’s classic Keynesian supply and demand. In contrast, a “soft” insurance market is one in which prices fall, year in and year out.
The problem with a soft insurance market is that it insulates poorly managed businesses, not punishing those with high claims. Their insurance costs are only slightly higher than those of a “best practices” firm because insurance carriers in a soft market lose all pricing discipline as market share, not underwriting, is their primary motivation.
Those businesses that have incurred insurance claims will see their unit costs increase substantially. For some types of businesses, such as healthcare, human services, or construction, insurance is one of your highest expenses. Further, insurance claims don’t just impact your future insurance costs, they affect your productivity and your labor costs. Insurance claims have an impact up and down your P&L statement, impairing your ability to compete in the marketplace.
Are you following me, grasshoppers? Those businesses that focus on the fundamentals of loss control and claims management, that either have a strong claims history or a desire to clean up their claims history, will have a major competitive advantage in their native marketplace during a hard insurance market. Simply put, their unit cost structure will be, at a minimum, 30% more cost efficient than that of their less-diligent competitors. Here are some of the techniques we employ with our clients to help them achieve and maintain cost efficiency.
Strategies for Achieving Risk Management Cost Efficiency
- Order your loss runs several times a year, not just at renewal. Outstanding claims are blank checks drawn on your account by someone else.
- Ask questions on the reserving practices of the adjusters on large losses. Have them factually justify their position. High reserves are a harbinger of higher insurance rates at renewal. Don’t just accept the adjuster’s numbers.
- For workers’ compensation losses, order both the loss runs and state worksheets showing how your experience modification was calculated. This calculation can contain very costly errors that will drive your insurance premium costs up.
- Have someone in your office do a contract audit. How is the risk allocated in your projects? Who gets left holding the bag? Do all your vendors and subcontractors have signed and executed contracts with proper insurance documentation?
- Did you just hire your next insurance claim? Set up a vendor or subcontractor qualification system to be certain the pool of capital at risk is theirs and not yours. Do this by confirming that their insurance, not yours, will respond to a potential loss. You can hire out a turnkey solution such as the RISK ROCKET, which performs this function for you.
- Don’t just renew your insurance as is. Ask questions with every new project and contract. There may be other ways to structure the insurance purchase that can give you greater cost certainty and cost efficiency (pricing).
- Get aggressive when an incident occurs. Take pictures, find witnesses, issue a very detailed report the day the loss happens. Help your insurance carrier mount a defense on your behalf. It will significantly impact both the amount the claim is reserved at and the amount it is ultimately settled for.
There are other strategies, as I am just getting started. We can’t emphasize enough how big an impact on your current and future profits these techniques can have, positioning your company to beat the competition in your marketplace by making sure you are as cost efficient as possible.
Need help positioning your company? If your current insurance brokerage relationship isn’t positioning your company and just facilitating a transaction, we politely suggest you speak to a risk advisor.