Insurance buyers: beware to be safe

Seems just like yesterday we met as an National Propane Gas Association task force to study alternative insurance options. In 2003 we published a white paper that referred to insurance industry cycles and future price reductions. We forecast lower premiums and more choices. It happened.

Jay Johnston

Now some folks just don’t seem to be able to give up the ghost on the concept of the propane industry competing with supplier members by getting into the insurance business. Under the guise of being “good business” they promote competing with NPGA members who pay dues, buy booths at conventions and serve on industry committees. All, I might add, while ignoring the current level of healthy competition.

Some espouse lower loss control standards while assuring better control over claims handling, best practice secrets shared and improved loss control. MBA-types claim to be able to instantly replicate loss control expertise while guaranteeing profitability. To hear the pitches you’d almost believe that they invented insurance for propane marketers much as Al Gore claimed to have invented the Internet.

For decades, certain insurance carriers stood by the propane industry through thick and thin. Those carriers have pushed marketers to higher safety standards, fewer claims and better loss ratios in open market competition. That is a fact.

The cries of limited choices are mostly about safety compliance, loss control and paying less regardless of price. I can document that the cost per gallon and cost per vehicle to provide liability insurance for propane marketers is not only competitive, but also more comparable to costs in non-hazmat industries.

Yet there are those who would have you believe that marketers pay dollars instead of pennies per gallon for insurance. It’s a fact that many companies are paying under 2 cents per gallon.

These alternative insurance providers need new capital and they want your insurance premiums. A few need your business to stay afloat. Some will actually quote prices over the phone without inspecting. I’ve even heard of promises to return 40 percent of premiums in four years.

It may be a buyers’ market, but buyer beware. In 2002, one of my clients moved his insurance business to an A-rated carrier with limited experience in propane insurance, mostly because they saved him $20,000. Ninety days later the state of Pennsylvania took over that company and many propane marketers had to buy new insurance from former providers at much higher prices.

Many alternative markets are fronted (buying an insurance company’s name) and/or offshore captives or risk retention programs. Designed to be less accountable to state authorities, their pitch is they can “pass the savings on to you.”

Measure this unregulated approach against standard insurance markets where they must file with commerce departments in every state regarding rates, profitability and surplus to ensure accountability. I tell my clients that a sense of urgency on the part of a salesman is never a good reason to buy, and that regulation of insurance providers is a good thing as it is designed to protect the consumer.

If you must go with the cheapest deal, it is also important to audit all parts of the program to make sure there was no misrepresentation or coverage left out on the way to the sale.

I cannot caution propane marketers strongly enough about the pitfalls of cheap insurance providers. How would you like to go to sell your company a few years from now and find out that you have an unfunded or under-funded claim that could cost you hundreds of thousands of dollars?

When you buy insurance you are buying the promise that they will be there with the money when you need it most. That is why I believe that insurance buyers must beware to be safe.

Jay Johnston is president of Jay Johnston & Associates, specializing in insurance, safety and leadership strategies for propane marketers. He can be reached at 952-935-5350 or
jay@thesafetyleader.com.