Five Tips to Reduce Your Insurance Costs
By: Stephen Machin, CMA

After 9/11 the property and casulty insurance markets went through an extremely challenging period.  It was commonplace for companies to cancel or restrict insurance coverage, coupled with compounded premium increases presented the insurance consumer with unprecedented challenges as they approached their insurance programs.

Starting about six years ago, the industry experienced a prolonged period of increased claim expenses from natural events and terrorism claims which impacted Insurer’s re-insurance costs.  The severe hardening of market following these world events resulted in a dramatic reduction in Insurers’ profits.  In response, insurance companies re-underwrote their portfolios resulting in premium increases as high as 50%. As a result of this premium and underwriting action, as well as the implementation of aggressive cost cutting initiatives, the past couple of years have resulted significantly improved profits for the industry.  The good news for business is that this recent trend has resulted in greater opportunities for businesses to obtain premium reductions as insurance companies compete for market share. 

The insurance marketplace is very unique and unlike any other cost area that companies incur.  First of all, insurance is highly regulated and while these regulations are designed to protect the insurance consumer, they also add  significant costs to the system that the consumer ultimately must bear.  Also, the intermediary between the insurers and customer, the Insurance Broker, is working for the customer but is normally paid by the insurance company.  While most brokers have the best interest of their client at heart, they still have a bit of a conflict since the more they lower the premiums the smaller their ultimate commission will be.

Therefore, as a buyer of insurance products, it is necessary for you to understand the risks associated with your business and develop a program to manage these risks.  There are two components to risk management: first there are the things you can do to avoid incurring the loss in the first place, and second is the reimbursement of the loss through insurance coverage. 

Here are 5 thing you can do to help manage your insurance costs:

1. Partner with a good broker.
   Find someone who understands your industry and can provide the knowledge and expertise you need to manage your costs.
   
   
2. Evaluate your needs.
   Although having a good broker is a good first step, nothing beats analyzing and understanding the risks associated with your business and the options available to manage these risks.
   
   
3. Get serious about risk management.
   Once you understand the risks there are many actions that can be taken to reduce or eliminate the risks and the need to insure them.
   
   
4. Actively manage all claims and costs.
   When your business incurs a loss, it may be tempting to brush it off if it's a loss for which the insurance company will reimburse you. But unless you demonstrate that you're taking aggressive efforts to minimize the current loss and prevent the problem in the future, you may find your rates going up or your coverage being cancelled.
   
   
5. Consider self-insuring some risks.
   There is certain coverage for which you absolutely must buy insurance. But carefully evaluate anything you might be able to justifiably self-insure. The list of optional coverages includes professional liability, directors' and officers' coverage, fiduciary responsibilities and employment practices.

Insurance is cost of doing business, but if it is managed effectively the savings potential is significant, however, it takes time and effort to be successful.