The Illusion of Cheap & Good Insurance: Endless Pursuit of the Cheapest Business Insurance
By Brian Pilarski, Brown & Brown of Detroit Commercial Insurance Advisor
I talk with hundreds of privately-held business owners, managers, and leaders throughout the year. Invariably, approximately 5% are seeking the “magic” fix to insurance costs (not our clients). The relentless pursuit of that secret insurance program, the one that is so cheap yet pays for anything and everything.
It doesn’t exist. It’s an illusion.
Do I believe in fair-market competition? Absolutely, 100%. Are there specialized programs and pricing options best suited for certain businesses? Yes!! Do we pursue the best-priced options? Absolutely, 100% of the time.
But a small set of businesses continue to mystify me when I walk into another meeting and listen to the latest scheme a client has heard about how to save all of this money. Or how “we” as agents are just going through the motions or don’t know where to find the best priced options.
We Don’t Want Businesses to Overpay
I do not want businesses to overpay for their insurance purchase in any way, shape, or form. We interject carrier competition and leverage market forces to find the best options, year by year. Businesses could save on some premium but end up with very high deductibles, but I think that is a different version of overpaying (on the claim side). Businesses could have a good price but receive poor agency response, which causes decreased value in the cost of coverage. Many other “savings” opportunities will also compromise the quality of the insurance program.
The amount of time and effort by this small subset of business leaders in trying to find the magic solution is mind blowing. I know a business owner that is convinced there is a rainbow to follow and there is a pot of insurance gold at the end, and just doesn’t believe “this is how it (industry) works.” This price-only-at-all-costs way of thinking often takes the insurance carrier interaction too personally, believing the carrier is purposely over pricing them specifically (not true).
As a professional with industry certifications, licenses and 25,000+ hours into this career, I still have yet to see the “magic” insurance solution- because it doesn’t exist.
What is Best Price for a Business’ Insurance?
The “magic” solution is dependent on a specific business’ risk, the company’s management capability, market conditions, company cash flow, claim history, and current market conditions. How strong are a business’ loss prevention procedures? How well protected are your properties? How well do you manage claims? How well trained are your employees? Quality control? Handle inspections? Handle all preventive items? Best-in-class or lowest cost possible also must be “earned” or justified by a business.
To boot, you have to ensure the coverage (money) is there for that specific business to cover their exposures.
One size doesn’t (and shouldn’t) fit all and with insurance; this is contract negotiation with a “bet” by both sides. The carrier is betting you don’t “need to use it” and the company is betting the carrier will cover all losses in the event of a claim. The importance of commercial insurance is critical to business continuity- there isn’t going to be a Walmart option any time soon.
We believe in a strategic approach to the pricing and costs of insurance programs. We also believe in reacting to the “rhythm” of the current marketplace, taking advantage of the immediate openings that may be available.
Industry Advertising to Blame
The insurance industry does this to themselves, thus should receive much of the blame. The aggressive sales agents lead with big price promises and often present options that are false positives. There are 15% savings promises on every commercial media available. Approximately $1 billion are spent on insurance ads per year, promising the magic solution.
More creative promises include possible dividends or premium returns. The latest craze in the middle market is captive insurance programs, where administrators glorify claim-free returns, investment income, and tax savings. For some clients, captives are the right solution. For others, it’s another form of the illusion.
What Business Should Expect from Agents
A good independent agency will provide risk management guidance, ongoing consultation, and cost-management throughout the year. At certain intervals, the client and agent should approach the marketplace to review the offerings available and capture the best options.
However, I don’t believe in beating up the marketplace and completely commoditizing the carriers. I don’t believe in the aggressive agent playing games with the insurance factors (sales, property values, and payroll). Coverage traps are lurking in the cheap, off the shelf products.
Once the claim occurs, it is too late to talk about coverage protection. Coverage in the contract dictates how the claim is adjudicated, without any do-over option or “we meant to buy something different.”
Carriers Offer Value to Businesses
Carriers do provide expertise to companies and help with risk reduction through loss control. Carriers also act as business partners with ongoing risk management; helping guide decisions made operationally to the type of risks they are not willing to insure. I have a lot of clients who use the insurance marketplace as their “gauge” as to whether or not they accept a contract, based on carrier feedback. Clients may not pursue a business line if they cannot obtain insurance; it provides them with feedback that the risks may be too great.
Seek Transparency; Simplify Insurance
In closing, businesses are often frustrated by the confusing process of purchasing insurance. The pricing mechanisms are interrelated and not linear. The confusion creates dislike, and for some, distrust. These negative, distrustful feelings lead businesses to find fixes and solutions that may not be the right fit.
The insurance industry and agents want businesses to be happy with their protection. The industry wants the client to feel “good” about the protection provided in return for their premium. The experience should be one of value and respect. If it is all a game or a just an aggressive price-chase, you’re doing it wrong.
To learn more about real price reduction strategies through risk management, please contact us: 586-531-2677 or email: [email protected]