As a business owner, you buy insurance every year to provide protection from financial loss. However, the commercial policy shouldn’t be viewed as a maintenance policy. The most important function of the policy is to provide protection from severe or catastrophic claims that could jeopardize the future of your company.
Business owners should partner with their independent agent to routinely analyze their claims with an emphasis on frequency. There is an old adage among commercial underwriters that “frequency leads to severity”. Thus, if a commercial underwriter observes a frequency of similar type claims, it sends up a red flag. What exactly is an underwriter looking for when analyzing loss frequency?
- Is there a frequency of small losses? If so, many underwriters will infer that it is just a matter of time before there is a large loss. This is especially true with slip and fall claims in places with heavy public traffic like grocery stores or shopping centers.
- Insurance experience indicates that frequency is a much better predictor of the future than is severity. Thus, an underwriter will often assume a bad trend is going to continue and be reluctant to write or continue coverage.
- Are there patterns to the losses? Same cause, same driver(s), same product, etc.
Assuming that you observe loss trends, what are some actions that you can take to improve your experience and reduce your premiums?
- Loss Control. Be proactive and take the common sense measures to prevent the claims from happening in the first place. This means correcting physical deficiencies on your property such as inferior walking surfaces, roof leaks, or buildings that need alarm systems or fencing due to target contents. Make sure your employees are properly trained. Make sure the products you manufacture are properly tested. Work with your carrier’s loss control department. Don’t look at the carrier loss control recommendations as a burden but instead as a way to ultimately reduce your insurance premiums.
- Higher Deductibles. There are credits on your property, auto, and general liability premiums for higher deductibles. The underwriter will also look at your business more favorably because it indicates that you are now a partner with the carrier in risk management since you are putting more of your assets on the line.
- Work with your Agent. Your agent has experience helping businesses like yours deal with the exposures that can endanger your operation. Tap into that expertise and let them help you improve your operation from a risk management standpoint.
Sometimes experience really is the best teacher and learning from your losses can help you transform those bad experiences into opportunities to improve. Talk to your agent this week about how you can improve your loss experience and start saving money.