If you've never formally managed risk before, starting can be a daunting process. However, it's likely that you're already using strategies throughout the business. These 25 tips are simple to implement in your insurance process and will help you lower costs and better manage risk.
1. Minimize the variability of insurance costs
A key goal of any good risk management plan is to keep insurance and other costs of risk low and less variable, with fewer and less extreme peaks and valleys. Insurance rates can vary 100%, 200%, 300%, or even more from the top of the cycle to the bottom. Plan for this by budgeting at the top end of the market.
2. Keep your company's loss ratio low
A loss ratio is a premium paid divided by the cost of claims incurred. When renewing a policy, or shopping around for other insurers, an insurer will look at your loss ratio. A low loss ratio will make your company attractive to insurers, which will result in competition over your account and lower premiums.
If you’ve had a good loss ratio then, in the long run, you should achieve better terms and price. If you’ve had a bad loss ratio, later you may pay higher rates, have exclusions added, have limits reduced, have deductibles increased, or not be renewed. What constitutes an acceptable loss ratio depends on the insurance company, the type of business, and many other factors, but obviously lower is better!
3. Work on becoming a coveted account to insurers
Insurance companies can only underwrite a limited amount of business based on factors such as their net worth, claims reserves, experience, type of insurance, etc. Since an insurer can only insure a finite amount of risk, they will choose what they feel to be the most profitable risks to insure.
It is important to note that insurers don’t have to insure your business. There may be some exceptions where regulators make it mandatory to insure certain types of risk, but this is rare. It is essential to make sure you are one of the right risks that they want as part of their book of business.
4. Choose deductibles that result in the optimal cost of risk
The general principle is the higher the deductible, the lower the premiums. By analyzing past losses in conjunction with insurance premium quotes for different deductible options, it becomes clear which deductible is best. A maxim in risk management is “don’t insure losses that you can predict and afford to pay.”
The key is to strike a balance between premium savings and claims costs. This should be done in consultation with your insurance broker. A risk management consultant may also be useful in determining optimal deductible levels.
5. Make sure your values and property limits are accurate
Do not over or under insure! Either way, it could cost you money. Make sure that the values you report to the insurance company are accurate. Accurate values and limits mean you are adequately covered, but that you aren't paying an excessive amount.
Some insurers and brokers may provide building valuations, so ask. If you aren’t sure of your values, have appraisals done.
6. Periodically check for unnecessary coverages
Work with your insurance broker to make sure you have all the coverages you need, but that you aren't paying for bells and whistles you don't need.
7. Make premium payments on time
Most cancellations are for non-payment of premium, so make sure your payments are on time! You don't want a cancellation due to "non-payment of premium" on your record.
In most cases, cancellation is made effective at the time of the cancellation; however, an insurer can also void a policy as if it never existed. If a policy is voided, then it is possible to deny any claims that happened during the policy term prior to the cancellation/voiding.
8. Examine how you pay your broker
Find out how your broker gets paid for their services and how much. Some may have flat fees or may be able to provide competitive pricing. When shopping around for a new broker, consider the services that they provide as well as the commission that they receive.
Try to negotiate a flat fee for service with your insurance broker as opposed to a commission based on a percentage of the premium. This will keep your costs stable and protect you from higher fees when insurance rates rise.
9. Utilize your insurance broker's services
Most businesses do not fully utilize the services of their broker. Ask your broker what services they can provide in addition to the ones you currently receive. There are many things your broker can do to help you, which may already be included in your fees.
Ask your broker for advice on any matter that involves the potential for loss, risk, insurance, claims, or any other matter in which they might be helpful. The worst they can do is say they don’t do that or that there is an additional fee.
10. Report all claims to your broker promptly
As the insured, you have certain contractual obligations under your insurance policy. These obligations may include prompt written notice of loss, protection of damaged items, or cooperation with the insurer. Your broker will advise you of your rights and obligations. Failing to give prompt notice may result in denial of the claim.
If you ever have an accident or incident where a claim may be possible, call your broker immediately. Even if you are in doubt as to whether something will be covered, call your broker. Your broker will let you know if you have coverage, advise you of your obligations under the applicable policies, and walk you through the process, as will the insurance adjuster.
11. Use your broker to help you with the claims process
Your broker can give you advice on the claims process, act as an advocate for you with your insurance company, and help you compile claim documentation. If you hit a stumbling block, or if you want to confirm that everything is happening as it should, ask your broker.
12. Risk mapping is an important tool
Identifying the risks to which your business is exposed to can be a challenging task, especially for new businesses. Established businesses have a history to rely on that gives them an idea of the things that can go wrong. It's a good idea to chart your risks in a way that allows you to identify the more common and serious risks so that you know the areas to which you need to commit resources.
13. Employ risk management techniques in all business decisions
Identifying risks in business decisions is much the same as with the process of identifying any risk. The key is to be thorough and use all the sources available. These risks can be prioritized and mapped in the same way. Use your broker and other experts to assess these risks if the expertise does not reside in-house.
14. Invest time and money in safety and loss prevention
Insurance companies are very concerned with loss control. Many do loss control inspections using staff and independent experts. Whether or not your insurer does any loss control, you should. Time and time again, studies show that for every dollar spent on prevention, many more are saved.
Insurers look very favourably upon businesses that take safety and loss prevention seriously. This can often result in yearly premium savings, not to mention the savings achieved if losses are prevented.
Prioritize your risks to know where best to spend your loss prevention dollars.
15. Insurance certificates are an effective method of risk transfer
Forward any requests for insurance certificates to your broker with all the relevant information. Ask your broker for advice on both the certificates that you request and the certificates that are requested of you.
Only someone with binding authority for the insurance company can issue a certificate of insurance. When reviewing a certificate of insurance, make sure that it is issued by an “authorized representative” of the insurer(s) listed on the certificate.
16. Implement and follow formal written policies
A very good way to defend a claim or legal action is to have formal written policies and procedures in place, and to strictly adhere to them! A written policy that is strictly followed can be an excellent defence.
17. Transfer risk by using waivers and hold harmless agreements
The legal effect varies, and there are no guarantees, but if properly worded, these can deflect and transfer liability. A properly worded and executed hold harmless and indemnifying agreement can provide good protection from a claim or suit. Always get legal advice on the wording of waivers and hold harmless agreements.
18. Develop and implement a Business Continuity Plan (BCP)
Invest some time in planning how your business will cope with a shutdown or major loss. A well thought out and practiced BCP will greatly improve the odds that your business will survive a catastrophe or shutdown. Insurance brokers and adjusters may have experience in this, especially the large national and international ones. There are also many trained and experienced BCP consultants that can help you develop a plan for your business.
19. Keep all old insurance policies and certificates
Policies and certificates are your proof that coverage existed. They are very valuable. Consider old insurance policies and insurance certificates as assets.
Many liability policies are occurrence-based. This means that a loss claim is made against the policy in place at the time of the occurrence responsible for the loss. It is possible for a significant time to have passed between the actual occurrence and the eventual loss. Some losses aren’t discovered for many years after they occur. Without the old policies, there is no proof of coverage and it is likely that the insurer responsible at the time in question will be forgotten
20. Sell yourself to your insurer at every opportunity
Most businesses have positive attributes that are not known by their insurer. Many have policies, procedures, practices, and other features that insurers would look upon favourably if they were aware of them. So don’t keep them to yourself, use them to your advantage.
Make sure you tell your insurer (through your broker) about all loss control/prevention measures in place, policies and procedures, physical protection, contractual transfers, etc. Give them copies of any policies, inspection forms, accident reports, training programs, etc. Remember, not only are they competing for your business, you are competing with all the other businesses for their capacity and for favourable consideration.
21. Loyalty to your insurer is important, but shop around occasionally
There are pros and cons to staying with an insurance company for a long time. Long-term customers tend to get preferential treatment, may get better rates, develop a rapport with the service providers, and may be given other perks. However, it is a good idea to look around every two to three years, or if you’ve been given a significant rate increase or unsatisfactory service. As satisfied as you may be with your insurer, from time to time you need to make sure they are being competitive.
If you are thinking about looking for a new insurance company, have your renewal documentation in your broker’s hands at least 90 days before the renewal/expiry date of your current policy. This gives them plenty of time to make submissions to their markets, for underwriters to consider your account, and for negotiation. This will put you in a much better position than if you wait until the last minute.
22. Make your insurance renewal submission comprehensive yet concise
Take the time to prepare a professional renewal submission. You want the underwriters to have all the information they need to make a decision. The submission should be easy to read and understand. Don’t tie them up with unnecessary information.
If a broker asks you to fill out an application, keep a copy so you can provide the same application to others who request similar information.
23. Physical protection can often result in direct premium savings
Investment in sprinkler systems, burglar alarms, fire resistant construction, and other types of physical protection can save you money in the long run. Discounts are often given for these things, so you need to analyze the cost of installation versus the premium savings over time and the potential reduction in losses.
This is a very broad area that can vary greatly, depending on factors such as your type of business, building types and locations, the scope of operations, and processes. Check with your insurance broker to determine what types of physical protection would have a positive impact on your premiums and claims.
24. Cooperate fully with insurance inspectors
Some people cringe when the insurance inspector comes around. Don’t! Look at it as something positive and helpful. They aren’t trying to catch you with something; they are trying to identify hazards and make recommendations to prevent them.
It is important to remember that the insurance inspector has a large influence on the underwriters. An insurer's perception of your business depends largely on the inspector's feedback about your cooperation and safety consciousness.
25. Vehicle loss control is an area to focus on for many businesses
Vehicle accidents are the most significant source of loss for many companies. Insurers want to know that you are being proactive in preventing motor vehicle losses. There are many ways to prevent vehicle losses and the more you employ, the fewer your losses will be, and the lower your premiums will be in the long run.
What tips and tricks do you use to better manage risk in your organization? Let us know in the comments below!
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