Safety-seeking marketers will find stability in the marketplace

In tough times, transparency becomes an important value. It’s the only safe way for us to sort truth from fiction.

Over the years, I have written a few columns on insurance, and two most notable were “Insurance safety solutions” in June 2008 and “Insurance buyers: Beware to be safe” in March 2007. The columns can be found under my byline at www.lpgasmagazine.com/www.lpgasmagazine.com. I stand by my convictions.

The big rap on insurance carriers has always been lack of consistency and competition. That was then and this is now. In fact, marketer insurance premiums have maintained consistently competitive pricing for the past four to five years. Hasn’t that been the goal?

The 2012 insurance marketplace for propane marketers will remain stable. Propane marketers who have held on while navigating the unstable weather and product pricing of 2011 should appreciate the importance of stability. However, those marketers who are consistently looking for the cheapest deal, regardless of quality, will have a hard time lowering the bar in 2012.

Insurance cycles have traditionally been the result of combined loss ratios (expenses plus losses) and available capital capacity. Never forget that all insurance programs must be profitable to pay claims and stay in business.

Short-term, knee-jerk reactions, to greatly increase premiums or cut prices to buy market share out of desperation, usually leave a wake of questionable practices when the results are tallied.

One of the greatest scams utilized by startup insurance programs is the ridiculous inference that insurance programs currently writing in the marketplace do not understand the propane business. Such sales tactics sound good and sell well to the cheap deal seekers, but they offer no credibility.

Best-practice propane marketers should look for credibility in an insurance carrier. Can they keep premiums in line with their costs to provide coverage while making a profit? Will they be there with the money? Those are credible questions.

New in 2012 is the question of premium audits for prior-year exposures. Some bean counters got together with a few MBA marketing wizards and came to the misguided conclusion not to perform audits. This sold well to marketers because they could grow without cost and be less accountable about their gallons. I have long maintained that audits are essential to an insurance company’s ability to inspect what they expect.

■ How do you know that the gallons declared by the agent are actual?
■ A change in the exposure should indicate a change in the premium up or down.

I believe that most propane marketers expect to be audited and get premium back for undelivered gallons in 2011-12. Marketers with no audit policies are probably out of luck.

When you expect something from nothing, sometimes that’s what you get.

Obviously growth, or lack thereof, is a key factor to such discussions.

Years ago, in a soft market, I had a client who bullied an insurance carrier into estimating more gallons than he would sell at a discounted composite rate per gallon. When the smoke cleared, he had gotten the discounted rate up front and 20 percent back at audit time. The insurance carrier immediately issued a new policy of 10 percent maximum returns on audits.

On the other hand, I spoke to a marketer who fell 30 percent short of expected gallons. His carrier does not perform audits, nor will they do them upon request. I shared the insight that he should lower his gallons to actual levels at renewal. That works well for the marketer but badly for the insurance company if 2012 is a cold winter. Lowering gallons also can be a costly strategy if the insurance carrier audits and next year you grow. You live by the sword and die by the sword.

Here is the good news for 2012: Similar to my forecasts in 2007 and 2008, those marketers who insure with credible insurance providers and demonstrate audited safety practices will find insurance costs to be competitive and affordable in relation to other, less-stable industry costs.

Safe growth and profitable results remain keys to transferring risk at competitive prices.