Corralling Insurance Costs

Higher deductibles, safety programs and security measures help control rising business insurance costs.

I am sure you have noticed insurance rates going through the roof for portable restroom operators over the last three years. A lot of explanations have been circulating to explain why this is happening. Rumors have said it was due to the expense of insuring against terrorist attacks since 9/11. Others have guessed it was a result of unusual weather patterns that have brought more hurricanes to the South as well as mudslides and wildfires in the West. While these occurrences have certainly had a minor effect, the biggest reason for rate increases was much simpler.

According to Mark Herring of Heffernan Insurance Group, rates have been going up because insurance companies lose money when the stock market takes a nosedive. To see why a dropping market drives rates up, you have to understand how the insurance business works.

Insurance companies collect premiums from customers all over the country, but they don’t just hold this money waiting to pay claims. They invest it widely, in bonds, stocks, real estate, etc. When not paying claims, the money grows. That growth is what fuels their profits. During the late 1990s, when investments were achieving double-digit growth, insurance companies were so profitable they actually provided insurance coverage at less than their own cost to keep the premiums coming in to fuel their investments.

However, after the stock market tanked and interest rates on bonds dropped to near record lows, insurers were forced to raise rates to recoup double-digit losses in their investments. What’s more, since their investments were losing, they couldn’t offer insurance below cost and needed to raise rates to profitable levels. Natural disasters and terrorists haven’t helped the matter, but the driving force on rates has been a stock market decline.

Of course, this good news doesn’t help pay the bills today. So, we asked Herring what companies can do to keep rates under control during good and bad times. Here’s his advice:

Raise Your Deductible and Plan to Pay Affordable Losses

“The number one thing you can do is to raise your deductible. The fender benders, equipment damage, and petty theft that happen in all businesses are better paid out of pocket,’’ Herring says. “I advise my clients that if they really want to lower their premiums and keep them low, they should consider a $5,000 deductible and think twice before filing a claim.”

Why should you carry insurance if you are not going to use it? Obviously, it will be there when you really need it to save your business if an employee is seriously injured on the job, if a truck is totaled, if a tornado, fire, or hurricane destroys your building or wipes out your fleet, or if you get hit by a lawsuit — frivolous or otherwise.

Paying the affordable losses yourself accomplishes several positive things: It keeps insurance rates as low as possible for your business. It gives you a tax write-off, since losses are fully deductible. It forces you to think hard about minimizing losses since they come out of your pocket.

Minimize your company’s losses

Accidents happen. However, a carefree attitude isn’t good for your business or your insurance rates. There are several things you can do to reduce your business insurance claims, including:

• Lock down equipment at night to prevent theft. Bolt locks should be used on all doors. Hitch locks should be used on rolling assets like flatbed trailers.

• Put break-in alarms and fire alarms in buildings.

• Ask customers to sign damage waivers to help defray the costs of damage done on the job.

• Try to hire only employees with safe driving records.

• Create disincentives for speeding or driving without seat belts, such as work suspensions for traffic tickets.

• Award safety bonuses to drivers who go a year without an accident.

• Don’t skimp on truck maintenance, especially brakes and tires.

• Train new drivers thoroughly so they are skilled in driving with large fluid tanks.

• Spend extra time teaching about the danger of rollovers, and stopping on slippery pavement.

• Encourage drivers to pull over when using cell phones or radios.

• Require rubber gloves and non-skid boots.

• Encourage drivers to use antiseptic hand cleaner in their trucks.

• Provide training in the proper handling of all hazardous materials including tank deodorizers, methanol and untreated sewage spills.

• Start a safety program that includes lessons in proper lifting techniques, how and when to use hardhats, how to avoid falls and injuries from falling equipment.

The next time you shop for business insurance get at least three quotes, and look for insurers who know the specifics of your business. You don’t want to end up insuring a “dump” truck, when you said “pump” truck.



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