You feel like you’re punished for owning a small to mid-sized enterprise, especially after seeing the cost of your insurance premium increase. Even larger business owners are experiencing premium hikes when you’re running your enterprise well. It’s as though who you are, and no matter what you do to minimize claims, the insurance industry punishes you with higher premiums during renewal season.
It feels as though the industry is taking their frustrations out on your business.
At ReNu Insurance Group, we completely understand how you’re feeling. We’ve worked with hundreds of business owners who have decided they’re fed up with the insurance industry doing this to them.
In this article, you’ll understand how the insurance industry operates and how it impacts your business. We'll also briefly discuss alternatives you can take to alleviate the burden of premium increases. This will help you understand how the industry interacts with your business, be closer to figuring out a plan that best fits your business, and maintain the coverage you need.
Why do insurance premium costs increase when I have no claims?
We’ve seen numbers for certain lines of business come back with 100% increases (which is insane to think about).
If you had a significant property exposure in a coastal state, you’re likely seeing ridiculous increases. You’re either paying for it or absorbing the risk yourself. If you take the risk, that’s a huge gamble, depending on the makeup of your building, the severity of a storm, how close your property is to the water, etc. You could be adding a huge risk to your balance sheet.
As a result, you’re writing out a huge check. And if it’s not you, the insurance carrier is making you pay enough to cover the check they write out for a claim. Either way, that’s a deeper hole in your pocket from which money escapes.
Why does it feel like the insurance industry makes everything so difficult for businesses?
The insurance industry is trying to put everyone into a box. If you’re on the good side of the box, you get a slight premium increase (or so you hope). If you find yourself on the wrong side, you see a huge fist to your gut with a cost increase—that or being kicked out of the box and finding a new one to hang out in. AKA, the insurer kicks you to the curb, forcing you to find someone else for your coverage.
They’re trying to be efficient and fast enough to underwrite individual businesses, and they have to since so many businesses exist. But because buying insurance has become more automated, your carrier is trading efficiency for a “one size fits all” approach. By saving time on their end, your coverage is affected.
How insurance carriers operate to insure businesses
The carrier’s goal is to have this massive pot of insureds pay an enormous amount of money to get more winners than losers, ultimately making a profit in underwriting, which is their larger goal.
These carriers operate nationally, meaning they can cover one business in Florida and another in Southern California, although underwriting also happens regionally.
For instance, construction laws in New York are such that the construction industry would have carriers run away. This is because of the construction-related accident being a gravity-related injury.
In Florida, construction defect laws are seen as problematic. Many claims are related to construction defects, which gives insurance companies pause when they know this is a prominent issue. After all, it costs a fortune to cover.
In California, building codes are challenging to deal with. This rolls down to the contractor, who already pays enough insurance premiums. Due to that, the consumer is paying a higher price, so the contractor is making enough. The more regulation, the more your carrier will charge or exclude to protect themselves and put more risk on the insured.
As you can see, while your carrier might operate nationally, coverage varies from region to region. It can also depend on the business you own.
Are there types of businesses most affected by the insurance industry?
Unfortunately, the hard answer is it depends on who is doing what at which point in time.
What does that mean? This depends on the number of claims coming from a certain line of business.
For example, there have been significant commercial frame losses in the construction industry due to fire or other disasters that have caused them to fail. The major insurance carriers are tuned into what’s going on and price accordingly to hedge their bet. With how frequent those claims have become, they don’t want their financial loss to kick them in the butt.
Ultimately, it depends on the types of claims and how frequently they’re happening.
What can make the insurance industry better with my business?
You can save money on your insurance and look better to your carrier by taking on more risk.
Everything comes down to risk management, safety, and training to minimize your pain. Understand what can happen. And if it does happen, you’re prepared to deal with it.
If you’re a car dealer in the Midwest, you can use hail nets or invest in a parking garage so cars sit inside no matter what and your property is protected from damages.
Even if you do all these things we suggest, your carrier might not offer you a better deal, even though you’re doing everything possible to minimize insurance claims.
Businesses that manage their operations very well will never find happiness in the traditional market—at least those that manage safety and risk management. There isn’t a reason for the insurance carrier to give you a better deal because you say you’re a good business.
Know the insurance strategies that can benefit your business
Understanding insurance and the industry is a pain, but at least you better know why it operates the way it does, and now your business can look better to your carrier.
It feels like you have zero alternate options for insuring your business. Thankfully, you have more choices in the traditional market.
If you’re willing to take on more risk with high-deductible plans, self-insured retention, or retrospective plans, they will likely give you a better deal—but again, not guaranteed. But that’s the only way they know how to do it because it’s how they can prove you’re better than the next guy.
The only way to demonstrate to them that you’re better than the next business is to show you can put your money where your mouth is. That’s why you need to read our article Insurance Strategies for Business Owners in a Bad Market to learn about these options and see which is best for your business.
Another insurance strategy you can learn about is captive insurers. Download our guide to get a rundown of how they operate and can benefit businesses.
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