Avoiding Risk, Lowering Costs

“This is a great time to shop for your [business] insurance. You have a very competitive market place,” says Chad Suter, a producer at the Burnsville offices of TrueNorth, an employee benefits, business life insurance, and retirement planning services firm. Suter says he’s delivered good financial news to many customers this year, in contrast to the early part of the decade. “Five years ago I was delivering 100 to 200 percent increases,” he says.

Prices are down for many business insurance customers—sometimes as much as 30 percent from last year or the year before. Nationally, insurance prices are down because insurance companies’ reserves are full. They’ve gotten better at evaluating and pricing risk, they’re keen to compete for business, and they’ve repackaged some coverage lines in ways that let customers pay for only the risks they’re likely to encounter. What’s more, the number and value of workers’ compensation claims are down across the country as a result of better workplace safety policies.

Minnesota companies are the beneficiaries of all those factors—and they’ve got an extra advantage as well. Insurance companies are particularly eager to compete for business in the Midwest, which has fewer, less comprehensive weather-related disasters than the coasts.

Not every business is seeing rate reductions, and some may see more modest drops of 5 to 10 percent. In general, though, “we’ve been seeing a softening trend over the past two years,” says Rick Smith, president for the upper-Midwest region at the Travelers Companies, Inc., a St. Paul–based insurance company.

Soft Market

Current rate reductions stand in contrast to the harder market of 2001 to 2005. During those years, many insurance companies raised rates, influenced by the events of September 11, 2001—and the possible financial liability of further terrorist attacks—coastal hurricanes, and a general trend toward more conservative underwriting.

But many of those potential risks never materialized. Because many insurance companies didn’t have to make the payouts they feared, most have reached or gone beyond their financial reserve minimums. “In reaction to September 11 and Katrina, there was a rapid price escalation that wasn’t followed by an escalation of losses,” says Rick Ahmann, CEO of the Eden Prairie–based R. J. Ahmann Company, a business insurance agency. “Their loss ratios in the last couple of years have been less than their premiums covered, so there’s room for cost reductions.”