There isn’t a more frustrating feeling than having low or no claims in a given year and only being surprised with an increase upon renewal season. It’s like getting grounded after earning all As in school.
The traditional insurance market keeps you in the dark when you receive those “oh-so-fun” increases in your premium.
At ReNu Insurance Group, we’ve helped more than our fair share of business owners deal with the headache of premium increases upon renewal season, whether through solutions in the traditional market or by helping them become captive owners.
This article will highlight why you’re experiencing renewal premiums and offer solutions to keep costs down. It will help you determine what solution would work best for your business.
Why there are cost increases for your business’s insurance premium
Premiums increase for a variety of reasons. You might be trying your best to minimize claims (or have had zero), and it feels like you’re being punished for keeping your business safe. The sad reality is insurance premium increases are more outside your control than you think.
1. Insurance carriers need to make a profit
First and foremost, the insurance carrier needs to make a profit. If you (or someone in the same industry) are causing claims for a particular line of business, you will see an increase. There’s no way around that. Depending on the size of the claim(s) are where you’ll see an increase or a potential for non-renewal.
2. Lawsuits and insurance payouts
Another reason increases happen is due to what some people call “social justice judgments.” For example, a lawyer gets someone $1 million for a slip-and-fall because some jury said it was worth that. This judgment may get appealed, and you’ll have defense costs and everything else that comes along with it. You have an increasing number of judgments that bring the financial amount higher and higher.
Somebody’s paying for that defense. And when those judgments get paid, they typically come out of insurance money. When the umbrella layer—extra insurance that offers protection beyond the limits of other existing policies—starts to pay out because the underlying limit was wiped out, this only makes rising renewal premiums that much more expensive.
Look, you’re seeing more billboards with lawyers telling people they can win the lottery because the person reading them was in a car accident. Or someone put it in your ear that the insurance company isn’t doing enough to cover you after you slipped and fell, persuading you to take it to court. You decide to sue, and the insurance company steps up with a defense lawyer.
The awards coming out from jury pools are way larger than they were in previous years. That drives the cost of your premiums to increase since, again, the insurance company you pay premiums to needs to make a profit.
3. More frequent auto liability increases
People cannot put their damn phones down while they drive nowadays. The same goes with workers in your vehicles. And there is a correlation between using your cell phone while driving and increasing your likelihood of crashing. People looking at their phones in one hand while operating the steering wheel in the other is not the proper way to be in the driver’s seat.
You’re more dangerous with distracted driving compared to drunk driving.
(This said, don’t do either. Put the phone down or stay away from the driver’s seat while under the influence).
All of this is to say that more auto liability increases result in more payouts, regardless of residential or commercial coverage, which affects the insurer's profit and your premium.
How can I keep premium costs down on the traditional market?
While there isn’t too much you have control over regarding premium increases, there are potential strategies you can use. Whether through more robust safety and risk management programs or changing your current insurance plan. Here are some potential methods of keeping premium costs down:
1. Manage your risk
What does that mean, though? When we say managing your risk, we mean prevention and containment through more robust safety and risk management programs.
One way to do this is to make your workplace safer. So, figure out how to make your workplace, drivers, and employees safer. Maybe you’ll require more safety training for employees, return-to-work programs, or updated employee manuals. You want to reduce the number of injuries or third-party liability on the job.
While you’ll still likely have a claim at least once every five years, creating a safer environment for your business will only benefit you.
2. High deductible plans
You are taking on more risk in exchange for a lower premium. High-deductible plans mean the carrier pays the loss. So, any loss payout subtracts from your deductible.
So, if the claim is $50,000 and your deductible is $10,000, your carrier is paying out $40,000. This means the carrier will pay out the claim and bill you for your deductible.
Sometimes traditional insurers will still increase your premium with this type of plan. Make sure higher deductible plans are worth it when you see a cost increase.
3. Self-insured retention (SIR)
SIR means you, the insured, agree to pay a certain amount before the insurer takes over. What this means is the insurer pays nothing until you do.
Because you’re taking on all the risk with this type of plan, the insurance carrier typically charges you less on your premium. You’re paying the money first before the carrier spends a penny.
4. Retrospective plans
This means your policy is adjusted based on losses during a policy period. You’ll pay an estimated premium initially as the actual losses are assessed.
Essentially, these plans reflect actual claims with your insurance costs. Higher than estimated losses will require additional premiums. Lower losses will have less premiums.
Learn about plans for your business outside of the traditional insurance market
With your frustration with increased insurance premiums bringing you here, you’ve learned about why you’re seeing cost increases and how to lower those costs while in the traditional insurance market.
While these plans presented in the traditional market might work for you, there are other options and routes you can take. It’s a vast world when it comes to insurance, which is why you need to read our article about Two Alternatives to Traditional Business Insurance.
Finally, if you have any questions and want to talk to one of our insurance experts, schedule a call with ReNu Insurance Group!
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