Real estate isn’t the only industry where location is important. The same can be said of commercial insurance.
"Currently, the insurance market is like Swiss cheese," says John Rowland, president of CRB Insurance, Racine. "Some areas are firm, but there are gaping holes of competition. It all has to do with your location and class of business. Every state is its own microcosm."
One example is property insurance. "Wisconsin benefits from one of the more competitive environments in this line," he explains. "Move your business and building to Illinois or Minnesota, and you’d pay more in property insurance premiums."
Premiums level off
Paul Price of Diversified Insurance, a member of Johnson Diversified LLC, Waukesha, describes the market in a more traditional manner. "It’s definitely softened up recently," he says. " The 15- to 25-percent increases in property, liability, automobile and worker’s compensation premiums has eased to increases more in the 10- to 15-percent range. Also, insurance companies are willing to negotiate rates with their longer-term and lower-risk customers."
Doug Henderson, branch president of The Horton Group in Milwaukee, explains, "In a truly soft market, carriers are in such competition for business that they lower premiums. We’re seeing carriers looking to write more business over the past six months, but premiums are either stable or increasing up to 10%. So the market is softening, but it’s far from soft."
These agents attribute the recent softer insurance market to the economy. "With two big rate increases under their belts, the insurance companies have gotten back to profitability," Price notes. "The stock market has improved, and there have been no serious U.S. catastrophes lately."
In the 1990s, insurance companies discounted their products more heavily and didn’t always stick to good underwriting practices. "They were hungry for premiums so they could invest the money in a booming stock market," Rowland explains. "That got them in a tough position when the equities fell off and the Sept. 11 disaster hit. Losses from 9/11 bankrupted many reinsurers, and those costs were passed on to the consumers. Now that times are better, we’re seeing property insurance rate increases leveling off to a few percentage points, more in line with inflation."
Some business insurance lines like director and officer insurance have experienced increases in the past, but they’re leveling off, too, Rowland says.
Price agrees that premiums are in a range from stable to slight increases, "but ‘clean’ business classifications like wholesalers, office buildings, artisan contractors and retail stores may even experience a drop in premiums," he admits.
Available, but at a cost
While premiums are not likely to give owners and managers sticker shock, that doesn’t mean all business insurance is always easy to get.
"To manage their loss ratios, insurance companies must employ good underwriting practices," Price says. "That means they’re looking at your business much more closely now. It’s the tightest it’s been since the early 1980s."
Rowland adds, "There’s almost always insurance available for most risks, but affordability is another issue. The marketplace is more competitive than it’s been in the past three to four years, but insurance companies are being selective," he notes.
One thing you can’t find is mold insurance. The large number of claims in the South has affected all areas of the country.
Worker’s compensation insurance is another tight area. The agents attribute that to rising health care costs. "Some insurance carriers stopped writing worker’s comp because medical expenses are so high and getting higher," Price comments. "You can get the insurance, but the low premiums of the past are gone."
Henderson adds, "Our state-controlled rates are considered inadequate for the exposure by some carriers, so they are opting out of the worker’s comp line here."
Depending on your class of business, it’s becoming expensive to get umbrella policies. And Rowland points out that medical malpractice insurance is still a difficult line, but availability is not an issue in Wisconsin.
What can a business do to manage risks?
All three agents emphasize the need to implement risk management programs and reduce your number of claims.
"There’s been a paradigm shift over the past 15 years from ‘We have insurance so let’s submit a claim for every little thing’ to submitting claims for only the catastrophes you can’t afford to pay for," Rowland says. "With insurance carriers sharing claims information, using claim frequency as an underwriting tool and rewarding customers who submit few claims, it pays to reduce claims to reduce premiums."
Most larger agencies can help you set up loss reduction programs. "A professional risk manager at an agency like ours can help you assess risks, segregate the problems, eliminate what you can and insure the rest," Price says. "A good safety program is key if you want your premiums to remain stable or go down."
Rowland agrees. "We’re currently helping one client to develop a customized incident report form to use when investigating any incident that could have or would produce an injury or damage claim," he states. "Things like this, and taking action after the report to remedy possible causes, can take your safety program to a higher level and head off big claims."
Henderson adds, "The business ownership and top management must buy into and support a safety and loss prevention program, as well as communicate that to their staff. Like others, we provide loss prevention and safety program consultation because if you can prevent losses, it makes your business a more attractive account (for carriers) and you are in a better position when it’s time to negotiate your policy renewals."
Another cost-savings tactic is to increase your policy deductibles, and if a claim is just over that deductible, don’t submit it. Insurance companies look at the number of claims more closely than the size of them.
If your business is in a high-risk category, "be the best in your class," Price advises. "Be as clean and safe as possible, nearly perfect, and insurance agents will seek you out. It’s also wise to find a good partner insurance agency and stick with that partner who will help you negotiate with carriers."
Henderson adds, "It comes back to controlling your exposure, being proactive on safety and being the best in your risk class."
April 2, 2004 Small Business Times, Milwaukee