December 15, 2018

8 Steps to Tame Upcoming Premium Hikes

Like clockwork, predictions abound regarding a hardening of the insurance market.  Such forecasts are as inevitable as death and taxes.  (Eventually, the prediction HAS to be right.)

In some ways, though, the insurance market that commercial buyers must worry about is the one that applies to its own coverage.  A rising tide lifts — or lowers — all boats.  A hardening market may raise insurance prices in general.  Some firms may find their own particular market hardening due to their recent loss history or because of the market niche in which they operate (e.g., pharmaceuticals, football helmet makers, day care operators, etc.)

If the risk manager or person in charge of insurance senses that insurance price hikes are coming, what can they do to cushion the blow and counteract the effects?  Here are 8 steps:

1.  Be candid and transparent about loss history.  If you have a rough patch of recent losses, acknowledge this.  Prepare talking points as to why this is an anomaly, not a harbinger of future loss patterns. Don’t think that the insurer will be unaware of your loss picture, as virtually every application for insurance coverage will ask you to recap your claim and loss historyNo need to sugarcoat reality.

2.  Document for underwriters the actions your company has taken to mitigate the exposure, going forward.  Address the baggage of claims history by demonstrating the specific operational steps that you have taken to render a future recurrence unlikely or impossible. Maybne you have instituted a new fleet car safety program to prevent auto accidents.  Maybe a redesign of your warehouse will lower your on-the-job injuries.  Perhaps a troublesome product line that drove prior liability losses has been discontinued.  You can’t change what happened in the past. All you can do is learn from it.   Institute steps to prevent its recurrence. Implement safeguards to cushion its impact, and make a cogent case to future insurers as to how you have learned from the past.

3.  Show loyalty with long-term relationships.  If possible, try to stay with the same insurance company unless there is a compelling reason to leave.   This can be a hard sell when there is a temptation to chase the lowest quote and to show the bosses how much money you have saved the company in insurance coverage.  Perhaps there are compelling reasons to leave, either due to price, coverage form or unsatisfactory claim service. Barring such features, however, you may be better off trying to cultivate a long-term relationship with an insurance carrier. This, however, should not blind you to better deals which may be out there in the marketplace.

4.  Test the waters and be willing to shop around.  This may sound contradictory to the preceding recommendation. Loyalty must be tempered, however, by an awareness of market conditions. It should not blind buyers or risk managers to the occasional need to test the waters and see if a better deal is out there. A better deal is not necessarily always a lower price, although that can be part of the equation. A “better deal” might be broader coverage or service enhancements.

5.  Seek an “early read” from incumbent insurers regarding price expectations.  Don’t wait until just before your insurance renewal date to get an idea of pricing. Ninety to 120 days before your renewal date, you or your insurance broker should approach your underwriters. Ask them for a preliminary, nonbinding sense as to what you should expect in the way of pricing trends. This preliminary signal may give you the ability and time to make a fully informed and reasoned decision as to whether you want to test the waters elsewhere or plan to stay with the incumbent.  If you fall into the usual rhythm and cycle of renewals, finding out only very close to your renewal date, it will be too late.

6.  Prepare the boss and upper management.  This is particularly true if you expect a material increase in the cost of your insurance coverage, whether it is overall or by line of coverage. Get out in front of this. In a non-alarmist way, communicate to the boss and the board the likelihood of price increases, the reasons and factors behind such increases, and what you as the risk manager or insurance buyer are doing to mitigate those anticipated increases. Never surprise the boss, whether it’s with regard to a project going off-track or a significant increase in the budget line item, such as insurance coverage.

7.  Develop relationships with underwriters before you get “in the crucible.”  Although insurance pricing is often a function of various quantitative data, relationships matter and can assist in obtaining concessions on price, coverage for service. Strive to identify the underwriters. Develop relationships with them well in advance of the hurried atmosphere of impending doom. Be proactive and get to know the underwriters long prior to the renewal date.  The time to cultivate a good working relationship with key underwriters is not when your renewal date is right on top of you. Dig your well before you’re thirsty!

8.  Consider higher retentions to offset rate and premium increases. Many times, premium and rate increases are inevitable. The only question is how much more you’re going to pay. One way to stem the impact of these increases is to consider stepping up to higher retention. By this, I mean a higher deductible. Often, the higher deductible you’re willing to shoulder, the lower your rate per thousand dollars of coverage. Consider this and ponder the trade-off. Make sure your management team buys into this strategy. Stepping up to higher deductibles on property insurance policies and self-insured retentions on liability policies can often be an effective way of managing the cost of insurance in a hardening market.

What other tips and tactics have you found useful in blunting anticipated premium increases?  Share your thoughts here!

 

 

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