RISKVUE ARCHIVE | FEATURE STORIES

Ten Smart Insurance Cost Considerations For Businesses

By James W. Reuter and Alice Kim, Lindquist & Vennum PLLP

Businesses must run a lean operation to remain competitive in our challenging global economy. Competition in a global market requires many businesses to review their operations and cut unnecessary costs. Insurance can be expensive, and companies may be tempted to skimp on insurance coverage. Indeed, business insurance is a crucial element of a successful business, but this does not mean businesses cannot be smart about insurance costs. Here are ten considerations to help businesses save on insurance costs without compromising on coverage.

(1) Take an inventory of your business property and determine its value. Then, decide what kind of protection and what level of insurance coverage you need. Do not purchase insurance to protect against highly unlikely risks, but don’t hide unusual risks from your insurance agent. Insurers will refuse coverage if there are any misrepresentations. Remember, your goal is to get adequate coverage to protect the risks your business faces. By the way, keep the property inventory you do in a safe place.

(2) If you find a suitable package or standard policy to cover your needs, go with it. It is usually less expensive to add riders than to get a custom policy. Also, if a dispute develops, ambiguities in a package or standard policy may be interpreted against the insurer. The same may not be true for a custom policy.

(3) A cheap policy might not be preferable and could be more expensive in the long run if the coverage is inadequate. The coverage under a low-priced policy could be much more limited than the coverage under more expensive policies. Check to see what and who are covered and not covered. In addition, you should verify that the insurance company you are considering is financially stable. Your evaluation of a company’s financial strength should look at a historical multiple-year report rather than just the current year’s ratings so you can analyze any trends.

(4) Choose a higher deductible or self-insured retainer and know the difference between them, including cost differences. The higher the deductible or self-insurer retainer the less you pay in premiums. The total cost of liability insurance also will be affected by how much coverage you place in each of three different types of liability policies: general or basic, umbrella and excess. A general or basic policy is the most expensive, an umbrella the next and an excess policy the least expensive. So, know the differences among these types of liability policies and allocate your coverage amounts among them to maximize your coverage and minimize your cost.

(5) Find a trade group or professional employer organization policy. Trade organizations can, and often do, negotiate good rates and better insurance terms for their members.

(6) If you rent business space, do not buy an insurance policy that covers the landlord’s liability and do not agree to do so in your lease. Such policies are usually considered unreasonable and you should try to negotiate out of such an arrangement.

(7) Think of ways to transfer your risk. For example, if your business involves hazardous work, hire independent contractors to handle it. Make sure your independent contractors have their own coverage for workers’ compensation and liability. In addition, request indemnification from your suppliers for any losses caused by their equipment. Also, ask to be named as an additional insured in the suppliers liability policies.

(8) Plan ahead. Create and implement ways to prevent loss and minimize risk. Insurers may lower your rates if you have a risk-management plan to minimize workplace injuries, prepare for disasters, and intervene on human resource matters. Also, the fewer claims you have, the lower your premiums.

(9) Review your policies every couple of years (and keep them forever) to make sure that they adequately cover your business risks without over-insuring. In addition, business insurance rates can fluctuate annually. Invite other insurers to bid for your business and see if there are any improvements on rates or products. Ask your insurer to match any better offers from competitors. If you end up thinking about changing insurers, make sure you discuss the risks and opportunities of any change with a knowledgeable insurance advisor.

(10) Last but not least, be proactive and seek advice from professionals early in the process. Insurance brokers can help explain your insurance options including costs. Ask your broker how you can cut costs. You should request written coverage recommendations from various brokers as you shop. Because an insurance broker’s primary business is to sell insurance, you also may want to seek advice from consultants or experienced attorneys who can help you compare and negotiate your insurance agreement terms including riders, navigate difficult state laws and discuss risks. 

ABOUT THE AUTHORS

Jim Reuter is a partner in the Minneapolis law firm of Lindquist & Vennum and chair of the firm’s Insurance Coverage Group. He can be contacted at 612-371-3519 or by e-mail at jreuter@lindquist.com. Alice Kim is an associate who has been assisting at the firm for the 2003 summer season.

This article is only a general summary for informational purposes and does not constitute legal advice. Consult a qualified and experienced insurance advisor for your specific situation or particular questions.

riskVue | The webzine for risk management professionals
September 2003