Avoiding Risk, Lowering Costs

That model didn’t work for insurance companies, Kevin Smith says. “The terms were inadequate and the prices were too low—it wasn’t sustainable.” To fix the problem, companies took the mispriced coverage out of the standard commercial property and casualty bundle, repriced it, and began selling it a la carte only to companies who really need it. “They’re charging fewer people—that is, only the people who really have the exposure—more money for the coverage,” Ahmann says.

Depending on your company’s risk factors, this can be a cost saver. “You’re not paying for it if you’re not exposed to it, and that’s an advantage,” Thomas says.

Safer Workplaces, Fewer Claims

U.S. companies have also benefited from a decrease in the number and overall value of workers’ compensation claims, which has driven down the cost of workers’ compensation insurance. “If you look at nationwide trends, both the frequency and severity of workers’ compensation claims are down,” Thomas says.

The decrease, he says is “partly as a result of companies’ risk management and safety programs.” Increasingly, many firms are devising better training and safety programs for workers in potentially hazardous jobs, and have successfully lowered their injury rates.

To keep those numbers low, however, it’s crucial to continue safety programs even after workers’ compensation expenses drop. “When rates were going up, companies could see safety measures as a worthwhile investment,” Schnebele says. “It’s really important that they continue careful employee screening, making sure they can do the job they’re hired to do, and that employees have the tools and training they need to do the job safely.”

Other companies may miss out on lower prices because they’re in an industry that insurance companies don’t consider especially desirable. Executive risk and employment practices liability coverage is getting less expensive, but more slowly than other commercial lines. “The impact of the subprime mortgage collapse means financial institutions that have mortgage-related exposures have gotten a lot more scrutiny. Stockholder lawsuits may arrive, and that affects directors and officers coverage,” Thomas says.

Product liability and recall insurance is expensive, too, Schnebele says. “Purchasing product recall insurance is a challenge,” she says. “It’s doable, but it’s costly.” It’s more difficult and expensive, she says, for companies that import ingredients and components from developing countries, particularly China. “People will be suspect of that, and there’s little recourse if something is imported and then causes trouble here,” Schnebele says.