In this and subsequent installments, we’ll look at ways for businesses to help keep their insurance costs as low as possible.
- Be the object of desire of insurers.The most important thing a business can do to negotiate the best insurance premiums possible is to be looked upon as a profitable account by insurance underwriters. Insurers are not unlike other businesses in that they are for-profit organizations. They are therefore looking for ways to add potentially profitable customers and to get rid of historically unprofitable types of accounts that have had poor loss experience. Loss control specialists and claims personnel generally report information to underwriters, who are the central decision makers on whether accounts will be written, renewed, or cancelled, and whether any credits or debits will be applied to the rates.To determine whether an account is favorable from a profitability standpoint, the first thing underwriters look at is the loss history of the account. They typically require documentation showing all claims, usually for up to the past five years. These documents are referred to as “hard-copy loss runs”, and serve as official verification of whether there have been claims or not, and provide claim details, including amounts paid, claims still pending, and reserve amounts (which are estimates placed on claims that have not been closed). It is therefore important that the loss runs not include any inaccurate information. For example, reserves can adversely affect the ratio of losses to premiums (loss ratios), and can often be lowered or removed. Yet some loss runs do not correctly reflect the actual reserves, making it seem as if the amount of a claim is greater than it actually is.
It is also important to understand that claim penalties are handled differently for business insurance than for personal insurance. Rather than assessing surcharges for claims automatically, business policies are evaluated based on both the dollar value and the frequency of claims versus the amount of premium collected. So avoiding submission of small claims, even if they are above the deductible, can help to not only reduce loss ratios, but to minimize claim frequency as well, making the business more desirable for the insurance company.…to be continued.