Published by Lawson Burnat
Insurance companies are rarely lining up at the door to bid on potential new business opportunities and get into a bidding war with other insurance carriers to see who can offer the lowest possible price. The Property & Casualty Insurance marketplace has been extremely competitive with very cheap rates for the last 10+ years; however, that is no longer the case.
What is the Difference Between a Soft and Hard Market?
- Soft Market – The characteristics include:
- Lower insurance premiums
- Broader coverage
- Increased capacity which means more policies written and higher available limits
- Increased competition among insurance carriers
- Relaxed underwriting criteria
- Hard Market – The characteristics include:
- Higher insurance premiums
- Reduced capacity
- Less competition among insurance carriers
- Tougher underwriting criteria
While the rapidly hardening insurance marketplace is the result of several factors, one consistent theme prevails. Until the last 6-9 months, we have seen very high loss ratios for almost a decade and losses that continue to rise without corresponding rate increases. It appears that the rates charged to insureds in the past decade were underpriced. As a result, new capital will probably sit on the sideline for some time until they start to see some market stabilization.
Underwriters will likely cherry-pick the best risks in the marketplace and pass on mediocre and poor performing risks. The mediocre and poor performing risks will have very few options, if any, to choose from. Thus, they will have to pay significant amounts of premium and receive average terms at best compared to what they were receiving in the past. Rather than hoping an insurance company will suddenly provide a competitive solution, one should use this time to focus their efforts toward implementing or finetuning a proactive risk management strategy.
Insurance carriers want to know what you are doing to lower your overall Total Cost of Risk by preventing claims and reducing the direct and indirect claims costs. Total Cost of Risk (TCOR) is the Premium Cost + estimated cost of retained losses + risk management costs. Insured’s need to focus on more than just insurance premiums as a way of quantifying risk. Premium Costs are typically the least controllable cost because they can be determined by outside events such as the stock market, the insurance marketplace, interest rates and weather-related incidents.
If you own a company, it’s almost impossible to avoid claims. However, there are things you can do to prevent or minimize risks. Below are a few ideas that will make you more attractive to the insurance carrier marketplace in this hard market:
Invest in Mobile Technology: While the explosion of mobile technology has transformed life in many incredible ways, mobile devices can threaten safety and productivity. Instead of prohibiting drivers from using their cell phones while driving, employers should implement a software program that limits phone accessibility. Numerous existing telematics software programs monitor employee driving behaviors to provide an objective picture of their driving habits. Trying to enforce accountability for employees without a telematics solution is like trying to drive blindfolded; there’s no way to hold employees accountable or enforce a fleet driver policy if you have no visibility into their behavior.
OSHA reported that the average car accident costs employers around $16,500, yet an on-the-job crash that results in an injury can cost upwards of $74,000. The cost of a fatality or serious injury due to a car accident can cost a company $500,000 or more. The indirect costs to an employer can be quite expensive as well.
Nevertheless, it is worth considering investing in software that prevents mobile device usage or implementing a telematics program. Insurance companies feel so strongly about this that numerous Commercial Auto Insurance carriers have begun providing telematics offerings to their customers for free or offering discounts on their annual premiums to those that implement.
Install cameras facing in and out: Although company drivers are not too fond of having cameras in their vehicle, cameras allow companies to know exactly how an accident happened and determine if the driver was distracted at the time of the accident. While this could be beneficial to the driver if they were doing everything correctly, it could backfire if footage shows the driver was distracted and was at fault. Some major benefits include:
- Improve Driver Accountability – A driver who is aware of the camera system being on board is more likely to be more cautious. This encourages drivers to stay under the speed limit and to be more aware of their surroundings since they know they are being monitored. Having the ability to monitor operations and make adjustments when necessary will make the processes more efficient.
- Help Reduce the Risk of Accident Fraud – Inaccurate accident claims occur daily. Commercial vehicles tend to fall victim to this since they are perceived as having more money to negotiate an out of court settlement. Having cameras can determine exactly who was at fault and can help defeat fraudulent claims.
Safety Training: The need for industry-specific training and internal loss controls is more apparent than ever. Every industry needs specific training to address all the potential exposures the company could face. Companies should also require new hire safety training to define the safety culture and set expectations; however, ongoing safety training is just as important. While inconsistent training could lead to employees passing on bad habits to new employees, companies with ongoing training produce workers that quickly recall safety guidelines, thus reducing workplace incidents.
Drug-Free Workplace Program – This may help employers reduce work injury exposure. Drugs and alcohol can impair both judgment and reaction times, putting your employees, clients and bystanders at risk. Drug-free workplace programs improve productivity in the workplace by allowing employers to screen out employees that could pose potential problems. An employee that refuses to take a drug screen following a work injury or receives a positive drug test can potentially provide the employer with grounds to deny the claim.
Integrity Testing – There are pre-hire overt behavioral integrity tests used to prevent high-risk job applicants from being further considered in the hiring process. By identifying four high-risk behaviors (Hostility, Theft, Substance Abuse and Lying), the test allows you to avoid bad hires who negatively impact your business.
What are the Benefits? These tests have helped clients see reductions in:
- Work Comp frequency
- Claim severity
- Employee turnover
Post-Offer Health Questionnaire – The ADA outlines three stages of the hiring process: pre-offer, post-offer and during Employment – each with particular restrictions on the ability of a potential employer to obtain information regarding an applicant’s medical history. Once an official job offer has been made, employers can require employees to complete a post-offer medical questionnaire that helps employers establish the employee’s baseline health level. It is best to focus on prior injuries or conditions that may preclude the employee from performing essential job functions. If the employee misrepresents their medical history or physical condition within the submitted post-hire medical questionnaire, the employer may have a defense to an otherwise compensable claim.
Nurse Case Triage Program – This service has become very effective in helping control and minimize work comp costs. Many workers’ compensation insurance companies are offering this service at no additional cost since they see a huge benefit.
How does a Nurse Case Triage Program work?
Nurse triage is an injury hotline in which Registered Nurses assist employers and their injured workers by guiding them through the decision-making process at the onset of an injury. The hotline is available 24 hours a day, 7-days a week. For non-emergency situations, nurses gather information to assess the injured worker’s condition and recommend a plan of action.
What are the Benefits?
- Shows care and concern for employees when they need it the most
- Reduced medical spend
- Reduced reporting lag time
- Reduced time away from work, loss of productivity and workplace disruption
- Takes the burden of medical decision making off the supervisor/manager
Contractual Risk Transfer Processes
One of the most critical parts of a risk management program is transferring risk to vendors, suppliers and subcontractors through carefully worded contracts. Contractual risk transfer should generally be thought of as an effort to insulate the company’s insurance or risk retention program from loss rather than as a replacement for that program. Showing underwriters that your risk transfer practices are sound will have a positive impact when going through your renewal.
It is important that if a company has implemented or is in the process of implementing some of the above strategies that this information is being communicated to the underwriter so they can note their files well in advance of the renewal. Though it is in everyone’s best interest to implement proactive strategies, it is ever more imperative now due to the state of the marketplace and the lengthier, more scrutinizing underwriting process that insureds are dealing with.