Insurance woes mount

April 1, 2002 By    

Propane retailers nationwide are howling about skyrocketing insurance premiums, particularly on the heels of yet another warm winter that is choking cash flow.

Not only are marketers facing premium hikes of 150 percent or more, they must prove themselves worthy of the same coverages they have carried for years without scrutiny. The bottom line is today’s propane marketers must pay a lot more money for a lot less coverage.

What’s causing the dilemma? Simple: Supply and demand.

Throughout the 1990s, a host of insurance companies jumped in and out of the propane market. In truth, many knew little about our industry and the risks they were assuming.

By discounting premiums in the same way that some startup propane retailers undercut the going prices in your service area, they grabbed enough market share to survive. As a result, competing carriers cut their prices to stay in business.

Marketers benefitted from the price war with artificially low rates, but the insurance companies took a pounding. Huge court awards, coupled with a lingering economic slump and the tempest of the stock market, have pushed a limping insurance industry to the brink of crisis.

You can’t stay in business very long paying out $1.20 for every $1 you take in.

Just one year ago, propane companies could solicit quotes from as many as a dozen insurance carriers. Today the number of companies writing policies nationwide is down to just a handful. Fewer providers means higher prices.

This dilemma is a major issue for many. Liability coverage is not an option when you sell propane; it’s a necessity.

Some of the problem is our own doing; there are still far too many shoddy propane operations that are an albatross to the entire industry. Everyone pays for their recklessness when a jury grants substantial punitive awards to an accident victim.

Unfortunately, even the best operators let their guard down periodically. If someone gets burned in an accident, the deep pockets of the propane supplier and your insurance carrier are sure to be tested, even without direct negligence.

Some saw the problem coming. In last year’s LP Gas State of the Industry survey, more than 5 percent of the responding retailers listed insurance cost and availability as the No. 1 issue in their business today. In fact, insurance worries ranked higher than product supply, cash flow and low profit margins.

Likewise, when asked what development will most impact their business in the next 12 months, insurance cost and availability ranked higher than safety, the economy and war/terrorism.

Sorry to say, they were right.

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