Resist temptation to cut back on insurance during slowdown

During tough economic times, some business owners and executives

might be tempted to cut back on their workers’ compensation and liability insurance policies. Those policies can be expensive, and cutting back or eliminating them could free up valuable capital for day-to-day expenses.

However, business owners who do that would expose themselves to a far greater liability if they had a claim such as an accident or defective product, said Donald Stacy, executive vice president and chief financial officer at Inland Power Group Inc., a Butler-based wholesale sales and service business dedicated to diesel engines and power generators.

Inland has six locations in Wisconsin, Illinois, Michigan and Indiana. The company services trucking fleets, transit coaches, fire and dump trucks, school buses and other large vehicles, as well as large backup generators for data centers and hospitals.

Instead of cutting back in today’s challenging economic environment, Inland Power Group actually increased its property and casualty coverage when it recently renewed its policies with Waukesha-based R&R Insurance Services Inc. Stacy recently spoke with BizTimes Milwaukee’s Eric Decker about the renewal and several industry changes affecting his company’s business.

BizTimes: You recently renewed your workers compensation and liability coverage and increased your limits on your liability. Why did your company do that in light of today’s economic challenges?

Stacy: “When we came up with our numbers, they were all prior to the financial implosion of the last six weeks or so. But in general, we expect our business to increase. The size of our jobs is larger, and the exposure is larger. And almost every major account we deal with seems to be going to a sales contract agreement with multiple pages. Most of the increases in coverage were fairly modest. But none of them went down.”

BizTimes: Did you think about cutting back on any of your lines of coverage?

Stacy: “No. Things today are much more litigious than in the past. I spend 25 percent of my time as CFO on what I would call risk-oriented activity, reviewing contracts and actually negotiating with customers to come up with terms and conditions that will protect us. Customers and their attorneys have become much more skilled at transferring risk back to you. I have seen such a big difference in big or ongoing contracts. I just finished an 83-page contract to define all terms and conditions for a generator set sales and maintenance. As I thought about this, the last thing I would do in tough times, if I had the choice, would be cut liability (insurance). Business is changing so rapidly, you’ve got to make sure that you’re covered.”

BizTimes: If other business owners or executives are thinking about dropping coverage or lowering their policy limits, what would you tell them?

Stacy: “The question you need to ask yourself is, ‘If the worst thing happened and you didn’t have coverage, do you have enough cash to handle your (exposure)?’ It’s different from saying, ‘Am I getting enough value from my current provider?’ Maybe the person needs to get a second opinion on what they’re carrying and who is writing it. The whole risk relationship is changing. With the larger customers, they’ve really gone out of their way via detailed sales agreements to shift risk to you. It’s been very noticeable over the last five years.”

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