While there are many factors that go into an insurance carrier’s pricing process, ultimately the end result is based on the underwriter’s perception of the level of risk that the client represents to the carrier going forward. In other words, the underwriter calculates the expected losses for a business over a certain period of time, taking into account safety factors, previous losses and payouts, says Chris Zito, managing director of Zito Insurance Agency a Division of Risk Strategies.
“On this basis, we have found that our greatest success in obtaining the best possible pricing and coverage terms from an underwriter results from helping clients reduce their risk profile,” says Zito. “As opposed to the often-used method of increasing deductibles to lower premiums, or pressuring an underwriter for better pricing on the threat to move business to another carrier — both of which are temporary fixes — we believe in helping businesses reduce or eliminate the root source of the risk.”
Smart Business spoke with Zito about how reducing risks at your business can help lower premiums.
How does reducing risks benefit a company?
This approach results in long-term, if not permanent, reductions in claim expenses, which in turn translates to better pricing and/or coverage terms in most cases. It is critical for businesses to understand their risk profile, so they can identify where they are most vulnerable. If you don’t understand the risks your company faces, you cannot begin to mitigate them.
By taking the time to understand your risk profile and taking steps to begin to reduce the risks to your business, you not only increase safety but, in doing so, can potentially reduce your insurance rates. In addition, a risk profile allows both you and your insurance expert to better quantify the amount of coverage required to adequately protect your business, reducing the risk of underinsurance or no insurance.
How can an experienced insurance agency help in the process?
Even the most savvy business owners can have difficulty imagining all of the risks faced by a business, so it’s critical to involve an experienced insurance agent to help you both assess and reduce risks. In doing so, it’s critical to have an open, honest conversation; don’t downplay the risks in order to achieve a better rate, as doing so could result in a loss of coverage.
An expert has many tools available to help businesses reduce their risk profile. Below are several examples.
- Analysis of your sprinkler system grading and advice on how to improve it.
- Evaluate telematics reports, which are often provided to employers as raw data and which can be difficult to utilize without the help of an expert.
- Perform a thermography survey, which helps identify hot spots in the electrical system of your building or production equipment.
- Analysis of the business’ workers’ compensation experience modification factor.
- Implement contractual risk transfer with vendors, suppliers and contractors.
- Evaluate proper use of waiver of subrogation language in lease agreements.
- Implement safety training programs, including driver safety.
- Development of emergency action plans
- Identify the laws, codes and policies that may be applicable to your business and help ensure compliance.
When should a business begin the process?
The short answer is, don’t wait. The process isn’t a quick one and beginning early will give you plenty of time to identify — and address — risks that could be resulting in higher-than-necessary insurance costs.
Once you’ve done that, it’s critical that you don’t just buy a policy and forget it. An attentive agent or broker will monitor your policy on a regular basis and ask necessary questions to ensure coverage is appropriate. Communicate any change in your business operations with your agent in case they may impact your insurance program.
Insights Business Insurance is brought to you by Zito Insurance Agency a Division of Risk Strategies