By Ben Polley
“A marathon is hundreds of miles. The finish is the last 26.2.” Much like running a marathon, the arenas of business strategy, finance, and insurance, require a long-term approach in order to find success.
It does not matter if you are a consumer of personal or business insurance, you probably think that insurance is a “necessary evil,” something we have to buy, hate to pay for, and hope never to use. You never gain anything from making an insurance claim.
With insurance claims, the best-case scenario occurs when you end up right back where you started before the claim. Add in frustration, loss of time, rate increases, and/or loss of coverage from your carrier and the best-case scenario still results in a loss. It is understandable to dislike insurance. We get it. We deal with the same things you do.
A Short-Term Solution
You may think that the best way to control your insurance expense is to find a cheap provider. You get a bunch of quotes and choose the least expensive option, feeling like you are winning by saving money. There is a better way to control insurance cost.
Going with a low quote based on price alone can quickly prove to be a short-term solution to a long-term problem. It’s like putting a band-aid on a gaping wound. Yes, it may reduce the bleeding, but it does not cure the injury. The same is true for using low cost insurance in place of risk management. If you don’t take a hard look at the claims you are suffering and develop solutions that mitigate the losses, reduce claim frequency, and help you learn how to avoid them in the future, then you will continue to have these frustrations.
Pricing is based on your loss experience. So, if you can reduce your losses, you reduce your premiums. Don’t get me wrong, I am a firm believer that insurance placement is an important component of an overall risk management program. Finding a competitive provider that offers the best coverages is critical. However, it is not the only component. Your insurance policy is the last resort safety net that should only be used when all other risk management strategies fail.
The Importance of Managing Risk
We always work to help our customers manage risk. This typically starts with a claims analysis. We dive into your claims history to find the root cause of your problems, what we can learn from them, and how we can put controls in place to reduce the problems from continuing.
If you have not suffered losses, that is great! We can take a look at the best practices in your industry and help you implement those practices so that you mitigate the potential of future losses. This can be done through a variety of risk management controls. Vehicle and fleet management, safety and ergonomics, cyber management and crisis management are a few that often get overlooked. Having a plan in place prepares you for what hasn’t occurred. The ideal insurance policy is the one that is never used.
The Long-Term Solution
If saving money on insurance is something that we all strive to do, then the best approach to premium reduction is to develop a risk management plan to reduce your claims. If you can reduce your claims over a long period of time, you will see much more substantial gains in the long term than if you shop out your insurance to the lowest cost insurance company every year.
For larger businesses, insurance pricing is based on a “loss pick”. Insurance companies look at a five-year analysis of your claims vs. your premiums paid to determine the cost of your insurance. The claims plus the company expense plus the profit equals the premium you pay.
Ultimately, if your business is successful in reducing your claims, you will reduce your premiums. Business owners that suffer losses tend to feel like the only answer is to send their information to multiple insurance companies and shop for a lower cost option.
This absolutely works in the short term, however, it does not solve long term challenges that drive up the costs. Until you take the time to focus on risk management and develop strategies to reduce your claims, your costs will continue to rise.
If your insurance premiums are to increase, we want it to be from growth and opportunity, not from claims. At Clinton Polley, our goal is to partner with our clients to help them thrive.