Avoiding Risk, Lowering Costs

Minnesota companies are also benefiting from national trends, such as better data and risk analysis, says Orie Voight, regional vice president for the Midwest at General Casualty Insurance, a business insurance provider with offices in Eden Prairie. In the past two years, insurance companies have gotten better at collecting and using their risk-related data, Voight says. They also have better industry-wide databases.

“Companies know more than they did a year ago,” Voight says—and in the insurance industry, more knowledge often leads to lower prices. “There is a price to pay for the unknown. More data, in this case, has led to better pricing,” he says. The unknown in this case—the number of occurances or actual cost of claims—oftentimes leads insurers to hedge their risk by overpricing some products. Now that they can price risk more accurately, many firms are lowering prices accordingly.

Ten years ago, for instance, pollution insurance, earthquake damage coverage, and water infiltration protection were routinely incorporated into many commercial property and casualty policies.

That’s particularly true for companies who specialize in one particular type of insurance, Voight adds. “If you are just looking at one product line, you should be able to get very good at pricing it,” he says. Smaller specialty insurers have in-depth knowledge that helps them compete with larger companies that offer greater coverage variety. And sometimes this can force those larger generalists to lower their prices.

Not a Package Deal

In some cases, better data has also led insurance companies to change the coverage they offer. Some coverage has gotten difficult or impossible to find, because it cost insurers too much. In the 1990s, for example, a commercial insurance policy might have included a per-occurrence limit, but no aggregated yearly limit for damages, Ahmann says. A per occurance (or per-project) limit pays up to the policy limit each time there is an occurance. Aggregated policies pay per occurance, but only up to a predetermined amount, say $50,000—so there is less risk associated with this type of policy. “[Aggregated] policies aren’t available anymore, though you can sometimes find per-project limits,” he says. If you need those, of course, you’ll pay for them.

Other companies have changed the ways they package coverage. Some types of insurance were once considered a standard part of a commercial insurance package. Ten years ago, for instance, pollution insurance, earthquake damage coverage, and water infiltration protection were routinely incorporated into many commercial property and casualty policies. Consumers bought it, often without a good sense of how much it cost or whether they really needed it or not.