Business owners are taking advantage of the falling premiums that have resulted from the current soft insurance market, but their cost-cutting exuberance may be putting their companies in danger.
A soft insurance market is generally defined by declining premiums coupled with higher limits, liberal terms, broader endorsements and more of an open-mindedness in the insurance community.
“During soft markets business owners and executives get so caught up in the price reductions that they sometimes overlook the real core of their insurance programs — coverage,” says Karen Miller, president of Royal Marine Insurance Group (RMIG).
If the coverage is not right or does not fit particular business exposures and risks, then what good does it accomplish if the business is underinsured or uninsured?
Smart Business spoke to Miller about how businesses should approach the soft market.
How can you take advantage of a soft market while preparing for a hard market to return?
While premium levels are very competitive with insurance carriers, you should invest that savings to improve operations that affect future costs of risk. Use those funds for expenditures in your plant, property and equipment that will facilitate a safe environment. Upgrade protective safety equipment or consider making some of those improvements that were not otherwise affordable such as installing in-rack sprinklers or reviewing your general office safety environment.
Align yourself with the right insurance carrier and establish a sound working relationship. When the market changes, having a solid relationship with your insurance company becomes a good investment. When the market hardens, they’ll be in a position to work with you because they have a comfort level with your business. Bottom line; don’t change a carrier frequently because of price.
Require your agents/brokers to provide their strategies, which outline the services they will provide. Then, when the market hardens you can keep them on task. Otherwise, they may not work too hard to obtain increases in commissions and/or slack off on providing you the service you deserve.
Has the economic downturn affected insurance premiums?
The recent downturn may have affected you and your business through decreased revenues, payroll freezes or layoffs. All of these impact your insurance portfolio and the premiums you pay. If your business is slowing there are some things you can do to make certain that you are not overpaying while still ensuring that your company is properly protected.
First, only sacrifice coverage if absolutely necessary! We have seen it happen — businesses are giving up coverage to save on premium only to have it come back and hit hard when they experience the pain of an uncovered or underinsured loss.
So look at coverage first. That is what you are paying for — protection! If you do not have the capital or the balance sheet to support an underinsured or uninsured loss then do not sacrifice on coverage. Borrowing capital these days is extremely difficult, so options will be limited at best.