The Fine Art Of Total Cost Of Risk Management
Your claims drive your premiums up. But that doesn’t even begin to address the hidden costs, which can be twenty times higher.
It’s not just the worker who broke his arm. It’s
- lost productivity
- clean-up costs
- employer-paid medical costs
- first aid supplies
- transportation expense
- OSHA fines
- experience mod help
- safety training
- overtime required
- prescription costs
It’s all that and more. If you want to lower your costs, it takes more than a broker, orchestrating a bidding war. It takes a proactive approach and a contractor insurance specialist to reduce your losses to the lowest possible point.
Insurance options that lower your exposure
Now you can look at insurance concepts that are loss-responsive, such as Alternative Risk Transfer arrangements.
The 50% Discount Plan (aka Alternative Risk Transfer in insurance geek speak)
When Connecticut construction company executives talk about saving money on insurance, they talk about going out to bid to save 10%. Not that 10% is chump change. Especially in a down economy. But it is chump change compared to what you really could be saving. And if you do it right, you’ll never have to go out to bid again. Don’t listen to us. Listen to our clients.
But this is not about cheap construction insurance. It’s about fairness. It’s about taking back control of your insurance destiny. It’s about getting rid of those competitor leeches that are benefitting from all your hard work. It’s about saying, “Never again will I give my insurance profits away”. It is about keeping the profit you make on your contractor insurance dollars.
This might come as a shock to you but if you’re really good at RPM™and run a safe operation, you aren’t the biggest beneficiary of all your hard work. As a matter of fact you’re probably a minor beneficiary. To add insult to injury, the biggest beneficiaries are your unsafe competitors. That’s right.
Here’s how it works. Insurance company loss ratios (losses divided by premium) are typically between 70-80% (depending on line of coverage). If your loss ratio is 50% and your unsafe competitor is 100%, the insurance company takes some of the profit from your account to offset the profit loss they have on his account.
You read that right. You are subsidizing the insurance premiums of your unsafe competitors. I’ll qualify that. If you aren’t in a loss sensitive or loss responsive insurance plan, you are subsidizing the insurance premiums of your unsafe competitors. I want that to really hurt so I am going to say it one more time. No matter how hard you work at RPM and safety, you are subsidizing the insurance premiums of your unsafe competitors if you aren’t in a loss responsive plan.
What is a loss responsive plan? The insurance geeks call them all sorts of funky names like captives and retros and large deductibles. However, they all have the same basic formula. Instead of paying premiums that are based on industry averages, you pay premiums based on your own individual experience.
They work like this. Based on your last five years of experience, a Loss Pick is developed. This is what the actuaries estimate your losses to be for the next 12 months. Then you add the Fixed Cost component. There is always some type of insurance facility/company involved and this is their overhead number (Underwriting, legal, actuarial, accounting, banking, administration, profit, reinsurance, etc). Depending on your size company, the Fixed Costs could be 30-50% with the balance (50-70%) a deposit on potential losses (the Loss Pick).
Here’s the best part. What ever you don’t spend on losses (all the way down to zero losses) you get back. The insurance company doesn’t make the excess profit. You do. Your unsafe competitors don’t get subsidized anymore which means that you’ll beat them more often (Isn’t this why you work so hard to begin with?). Not only that but in some of these arrangements, you can earn interest on your Loss Pick money while it’s on deposit. At another level of sophistication, there are tax advantages that enhance the profitability.
With a loss-sensitive policy, you make an arrangement with the insurance company, where you share the underwriting profit in whole or in part—and sometimes the investment income as well. The profit comes from the difference between your premium and the losses actually paid. The better you control losses, the more MONEY you recover.
We’re even willing to show you how much you could be saving—free, with no obligation. It’s risk-free. Interested? (Click here or call (800) 252-9864)