Riding the Insurance Wave

According to insurance agents and carriers, it’s a great time to shop for property and casualty insurance. Premium rates are low and evidently headed lower, thanks to intense competition for clients, especially in the Midwest, which is not subject to the catastrophic hurricanes or earthquakes that have driven up prices in other states.

The average rates that Midwest businesses pay for insurance have fallen by 15 to 20 percent in each of the past two years, says Jim Johnson, executive vice president of marketing for RJF Agencies, Inc., an insurance brokerage in Minneapolis. The trend applies to everything under the property and casualty umbrella—insurance for workers’ compensation, general liability, property damage, company vehicles, and more.

At the moment, even companies with poor claims histories often have little trouble finding insurance at attractive rates. “In this soft market, it seems there’s always a [carrier] willing to be aggressive on every account,” says Cliff Lake, executive vice president of Brown & Brown Insurance, an insurance brokerage in Minneapolis. “I’ve seen companies with 100 percent loss ratios over the last couple years [i.e., claims equal to premiums paid] get 20 percent premium reductions—sometimes from the same insurance carrier.”

In such an environment, companies that get lackadaisical about managing their risks feel little pain. And with the general economy so shaky, most businesses have a thousand more pressing concerns than comparing insurance premiums. It becomes very easy to take one’s eyes off the risk-management ball—to get slipshod about things like worker-safety procedures and training, vehicle maintenance, and building security.

But while the pain might be deferred for those who get sloppy, pain certainly will come, experts say. The insurance industry is cyclical, and the market will harden up—maybe not this year or next, but sooner or later. When it does, the price to be paid for a bad claims history—the cost of looking like a bad risk—suddenly will become very steep indeed.

In a harder market, a company considered a bad risk can easily pay double what a good risk would pay for property and casualty insurance. That’s assuming the bad risk is able to find insurance at all.

That is a real danger, agrees Alan Thomas, president and CEO of Willis of Minnesota, Inc., an insurance brokerage with offices in Minneapolis. In today’s market, he says, 10 carriers might be competing to write your business. When things harden up, that number may drop to two, “and they can name their own price.” If your claims history is really rotten, the number might drop to zero. If that happens, your business will be in serious trouble.

Tim Howe, director of national accounts in the Hartford, Connecticut office of St. Paul–based insurance giant The Travelers Companies, puts the case this way: Though the economy is challenging and insurance rates are low, “your exposures haven’t changed. You’re still in the business you’re in.” Workers still get hurt. Fires and tornados still occur. “Risk management is an expense, not a profit center. But when you manage exposures and pay attention to safety, ultimately your cost of doing business will be lower,” Howe says.