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Dealing With Spiraling Insurance Costs
Soaring
insurance premiums are adding an extra burden for businesses already
struggling in a tough economy. Insurance companies attribute the increases to
a long list of causes including terrorist activities, spiraling asbestos and
mold liability claims, and weakened investment opportunities.
All lines of commercial insurance have felt the pinch, with the heftiest
increases (30 percent to 50 percent) in commercial property. Umbrella
policies rose by 26 percent. Construction risks showed a 23 percent increase,
and directors and officers coverage went up 18 percent.
In addition to higher premiums, underwriting standards have tightened and
benefits have shrunk. For some companies, finding insurance at any price has
become a challenge.
Self-Insurance
For many businesses, the answer is self-insurance — using their own assets to
cover their own risks. Larger companies may form subsidiaries known as
captive insurance to insure the parent companies, backed up with reinsurance
plans to provide protection above an established claim limit.
Even small and midsize companies can insure themselves for workers’
compensation, health insurance, short-term disability, and general liability
coverage, with the help of stop-loss insurers that provide coverage above a
predetermined limit.
Self-insurance pools can help small companies meet minimum asset requirements
set in state standards.
Positive Steps
Industry forecasts offer little prospect of relief in the near term, but you
can take positive steps to improve your insurance prospects:
- Increase safety efforts. Better safety records
earn better premiums.
- Keep a close eye on workers’ compensation
claims for indications of possible fraud.
- Invest in security devices to reduce the risk
of theft, arson, and vandalism.
- Affix your name in several places to valuable
equipment.
- Flag employment records to show risk levels
associated with the work performed to receive more favorable rates to
cover lower-risk jobs. Office workers, for example, are not subject to
the same level of accident risk as line workers in heavy industry.
- Provide separated work spaces based on risks
associated with workers’ roles. In a retail bakery, for example,
providing a service window linking the kitchen to the cashier serving
customers could keep the cashier out of the kitchen — and out of the
higher-risk category associated with kitchen work.
- Obtain certificates of insurance from vendors
and subcontractors whenever possible, to transfer risk.
- Assess each business activity or service for
risk and potential impact on insurance. It may make sense to abandon
high-risk activities that are not an important part of your operation if
they cost you more in insurance than they are worth.
- Reexamine valuation methods used in your
property coverage to see if you can save by accepting a different claim
settlement standard for a property loss. Instead of replacement value,
consider the possibility of insuring for value adjusted for depreciation
of the lost property or value of a functional replacement.
- Investigate the possibility
of higher deductibles for property coverage.
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