Controlling Insurance Costs
Keeping a sharp eye on your business can keep your premiums low.
By Denise L. Rondini, Executive Editor
Insurance premiums represent a significant cost to most dealerships. In fact, according to Zurich Services Corporation, the national average workers’ compensation insurance cost is almost 3 percent of payroll. And workers’ compensation is only one type of insurance coverage dealers must have.
However, there are steps dealers can take to try to control their workers’ compensation risk, according to Jeff Kweder, president, InsureTruckDealers.com, a division of Shepherd Insurance.
“Dealers need to be proactive in terms of their hiring practices as it relates to pre-employment physicals and drug and alcohol testing,” he says.
“Even committing to wellness initiatives at the company is a good idea because not only is it important from an overall health insurance perspective, but it drifts down to the workers’ compensation dollars as well.” And given that worker’s compensation may be 50 percent of a dealer’s overall insurance premium costs, anything a dealer can do to reduce claims helps.
“There is absolutely a cause and effect relationship with the experience model for workers’ compensation,” Kweder says. “The lower your frequency and severity of loss, the lower your premiums become. Conversely, the higher your frequency and severity of loss, the higher your premiums become.”
Dealers who have not already done so, might want to think about adding a risk management coordinator or a safety training coordinator. “I have seen a lot more investment from dealers in safety concerns and safety models lately,” he adds.
According to Kweder, this has really helped the industry overall with the management of premiums.
“We have seen premiums become very, very stable as a result of this industry being a profitable one for the insurance business,” he says. “The insurance companies are very aggressive in their appetite for business because the companies they are insuring are by and large committed to safety, committed to risk management and in many cases have formalized procedures in place and employees whose sole duty is either safety or risk management.”
However, workers’ compensation is not the only risk dealerships have to contend with. Another big area of concern is garage liability insurance.
“From a severity perspective, that is where we traditionally see the largest claims,” Kweder says. “We don’t get to pick and choose how severe the accident is going to be, so as far as protection of the dealership, they need to have quality garage liability and an umbrella insurance policy to protect against a catastrophic event relating to a truck accident.”
Having properly trained technicians is the best way to protect the dealership from these types of losses. Setting up best practices for various types of repairs also is recommended.
“I think dealers also should set up quarterly risk management and safety meetings,” Kweder says. “This shows employees that management is in tune with making sure everything is done the correct way.”
Zurich Services adds, “The key to controlling [insurance] costs is you. You, as the owner, operator or manager are the key to controlling insurance premiums.”
Another key to protecting your dealership is to be aware of new risks that may arise. “Other areas that a lot of truck dealers don’t think about are data bridge coverage or internet liability exposures,” Kweder says. This relates to dealers having access to private information about their customer and also to selling parts on line.
“The insurance is there to protect either the value of the privacy of the customer information or to protect against internet fraud.”
He adds, “Many dealers have not thought about this, but I think it is going to be a staple item in our product portfolio in the next couple of years.”
One encouraging sign that Kweder has seen is dealers having risk management experts or insurance consultants speak at their 20 Groups. “This allows dealers to share the good and the bad about their insurance experience and learn from each other. Often it ends up as a discussion of horror stories: finding out that insurance did not cover hail damage to a customer’s vehicle or selling $50,000 of parts on-line only to discover the credit card used for the purchase was fraudulent.
Reviewing your insurance coverage several times a year can help you keep abreast of changes, and make sure your insurance policies are right for your operation. While Kweder suggests frequently reviewing your policies, he recommends that you only look on the open market for a new carrier every two or three years if you are satisfied with your current coverage, agent and carrier.
When you are looking for a new carrier, look at one who has financial stability. “With the recent financial crisis, you need to have company that is stable financially,” Kweder says. There are a variety of ways to check the financial stability of a carrier including AM Best and Dun & Bradstreet.
“Also look at their commitment to your local area,” he says. “Is there a local or regional claim office? How are claims settled? Are they going to be settled by a third party or by the carrier themselves? Is the agent you are dealing with committed to the industry or is it just a small part of his overall business? Do they have the specialty coverage for things like leasing and rental, which are unique exposures for truck dealers? Do they have the capacity for larger limits because many dealers have significant assets so they want to have a company that has the capacity for multi-million dollars of umbrella coverage?”
Your insurance agent should be working closely with you to help you find ways to reduce losses, which in turn reduces premiums. According to Kweder, they should review your prior loss history and make suggestions related to those situations.
The current insurance market is tough. “We are dealing with a tightening insurance marketplace, workers’ compensation and increased medical costs,” Kweder says. “We are also dealing with a tightening property insurance market because of the severe storms that have hit across the country.”
He believes that dealers who have committed their energies and resources to risk management for health initiatives, training, hiring, etc. are in a very favorable position. “People who have not made those commitments are in an unfavorable position and they are going to be paying significantly more than they have in the past because of the tightening market.”
Elements Of A Loss Prevention Program
According to Zurich Services Corporation, establishing an effective loss prevention program can be simple.
A safety program needs to contain the following elements:
- A published safety policy statement — This shows management’s support and commitment to safety. Make sure to establish objectives for the program.
- Assign responsibility for the safety effort — Designate one person at each location as the safety coordinator, and give him or her authority to address safety-related issues.
- Develop workplace rules and procedures — Publish and post safety rules. Develop procedures for job tasks and identify hazards and controls.
- Establish supervisor and employee training teams — Make sure to include a discussion of safety in your new employee orientation. Hold regularly scheduled safety training for all employees.
- Investigate all incidents and accidents — The goal is to determine the actual cause of the loss and then identify corrective actions.
- Conduct regular safety inspections of your facility — Identify hazards before they can cause accidents or injuries. Evaluate unsafe acts and conditions.
- Involve employees in the safety effort — Set up safety committees, incentive programs and suggestion boxes.
- Address regulatory compliance issues — Make sure you are in compliance with all fire safety codes and that you are meeting OSHA standards.