How to slow insurance rate increases

May 1, 2001 By    

Have you received a call from your insurance agent notifying you of premium increases this year? You will! Prepare to allocate some of your winter profits toward your 2001 renewal.

The insurance industry, which includes propane insurers, has not received an overall rate increase in 15 years. During 1986, the insurance market increased their rates significantly and restricted coverage. Since then, insurers have reduced their prices annually to retain their market share. This has resulted in several insurers going bankrupt, others becoming financially impaired and others departing the propane marketplace due to insufficient premium rates. Fewer insurers mean less competition and higher premium rates.

What can you do to prevent these increases?

Your insurance agent receives between 15-20 percent of your total premium for the placement of your insurance program. This figure varies based on your premium size.

I would suggest that you ask your agent how much they receive from your programs. If you believe they receive too much, you should advise your agent that you want to move to a “fee” based program. Here is how it works:

You have saved $5,000 off of your insurance costs with a minimum amount of effort.

If your agent indicates they don’t wish to operate on a fee basis, market your program to other agents who will participate. A reasonable fee for Workers’ Compensation is 5 percent of your premium and for other lines 10-12.5 percent.

Other alternatives include direct writers. The Internet has revolutionized the insurance marketplace. Today, you can receive five or more quotes for car insurance on line. Just fill in the requested underwriting information and your quote returns in minutes. Insurers are underwriting auto and other insurance directly with prospective policyholders without the need of an agent. This is both good and bad news.

The good news is the average cost savings to you working with a direct writer is between 15-20 percent of your annual premium. The bad news is you must fill out all of the underwriting information, which was previously completed by your agent, which is somewhat time consuming

Expect to spend 30-45 minutes on line for the application and another 30 minutes answering underwriter’s questions. If you consider the example above, the cost of insurance to you would be $50,000. There would be no commission or fee payment.

Other Options
If you remain with your broker and want to reduce your insurance costs, I suggest that you discuss the following items with them:

Consider larger deductibles to offset the projected premium increases.

Consider self insuring some of your less expensive equipment under your property policy.

Higher deductibles mean you will pay less premium at the time of your renewal however, if you have a claim, you will incur a larger deductible amount. The result is a simple mathematical equation: New Premium + (Higher Deductibles X Projected Accident Rate) vs. New Premium + (Older Deductibles X Projected Accident Rate)

A wise consumer requests quotes with varying deductibles. If you have a $500 deductible per accident, consider quotes with $500, $1,000, and $2,500 deductibles. You may be surprised at the premium pricing at different deductible levels. If you have fewer accidents, you may benefit in the long term.

Other Premium Considerations
Besides deductibles there are other ways to reduce your annual premiums.

Your Workers’ Compensation policy contains an “Experience Modification Factor.” Your “Mod” is predicated on your safety record from prior years compared to those in your industry and state. Simply, if you have a higher accident frequency or your claim costs are higher than your state industry average, your mod will be higher and Workers’ Compensation policy will be surcharged.

Conversely, if you have fewer claims and your insurer has incurred lower than average claims costs, you will have a credit modification below 1.00. Safety does pay dividends in the long run.

Automobile Liability
There is a serious turnover of “qualified” bobtail and transport drivers in the industry. When new drivers are interviewed, we question the applicant if they have a commercial driver’s license. We rarely ask if they have had any recent accidents and if so, the details.

While this sounds very simplistic, many bobtail and transport drivers are hired from other propane retailers because of inferior driving records. Don’t hire your competitor’s poor drivers just to fill a position with a “warm body.” It happens too frequently and it is a costly mistake.

Defensive Driving Courses
If your drivers have an increasing number of accidents, contact your insurer’s loss control representatives for a defensive driving course. Insurers have two types of programs:

In-house programs that are given by loss control specialists trained in defensive driving. Outside consultants who provide programs such as the “Smith System” for defensive driving. These programs are effective tools in reducing accident frequency and damage severity.

Prior to a recent renewal of a valued policyholder, I received a call from the president of the company. He confided in me that his bobtail drivers had no accidents during the snow and icy weather conditions, but had six rollovers when it was clear and dry. He asked for my input to help reduce the accident rate.

My loss control representative and I came to the conclusion that his drivers were very focused during adverse weather conditions. However, once the cold and icy conditions went away, the drivers became focused on the problems in their local offices. When informed, the president took corrective action immediately that reduced the rollovers to one the next year.

Normally, defensive driving courses focus on proper driving skills. As an example, these courses teach both new and experienced drivers how to handle a bobtail that has run off the road surface. Untrained drivers normally jerk the wheel to the left resulting in a rollover due to load shifting.

Educated drivers suppress the jerking reaction and allow the vehicle to come to a stop with a minimum amount wheel movement. Tow bills are less expensive than total vehicle replacements. Drivers usually are uninjured and return to work after remedial driver training. Injured drivers result in decreased productivity that adversely impacts your balance sheet.

Advanced Technical Training
Technology is changing daily and it is essential that your service personnel be properly trained. Product manufacturers and wholesalers conduct training classes on new appliances frequently. Initial and remedial training is essential.

Studies have established that accidents occur most frequently to service personnel in the following experience categories:

0-3 Yrs.: Insufficient training and inexperience causes accidents that involve customers and employees alike.

25+ Yrs.: Remedial training of veteran servicemen is essential in keeping customers and employees safe.

The truth is accidents can happen to anyone anywhere at any time. Stay focused on the job at hand.

Safety and Training are not only the right things to do; they are rewarded by lower insurance rates. They help to reduce or prevent accidents that cost the propane and insurance industries millions of dollars annually.

When we educate our employees and focus on safety, our accidents will diminish. This means lower insurance rates for your company; lower insurance rates for our industry; increased competition from more insurers; a safer workplace for all Industry participants.

Safety and training requires a T.E.A.M. effort. Together Everyone Achieves More. Come on and join the T.E.A.M. effort.

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