August 16, 2010
Cutting costs without cutting corners
Use your annual review of insurance policies to find smart ways to save money
By: Lori L. Mavrigian
To make the most of your insurance dollars, you need to understand exactly what your needs are and conduct a thorough review of your exposures.
It’s customary to have at least an annual review, and it’s very important that you walk through your policy line by line, section by section with your insurance agent so that you understand exactly what’s covered and, equally as important, what’s not covered, says Bob Tschippert, head of the Americas, Global Automotive Industry, Zurich, North America.
Then you need to know what coverages are available to you. Armed with all this information, you can make intelligent business decisions about what types of insurance to have.
In these current economic times, insurance and training are two of the very first things that get cut and, ultimately, lead to higher losses, notes Tschippert.
“As an insurance company, we see the results of a lack of proper training. It could be as minor as a repair that has to be redone, or as severe as a fatality due to a new employee coming in who has not been given the proper training on the use of equipment or inspection procedures.
“The dealer needs to know that the lack of proper processes and procedures is a huge exposure from an insurance standpoint, ultimately leading to higher losses and higher insurance premiums. It only takes one mistake, one careless act, one event to put his business at risk.”
Annual insurance reviews are a necessity. As part of the review you will look at building value — what is appreciated, what changes you have made to the business, and what new equipment you’ve added.
Says Tschippert, “I know the annual review is painful for someone to go through who is not in the insurance business. But I always like to schedule several hours for a comprehensive review with customers, so that at the end of the review I feel good about the coverages and the client feels comfortable that he is fully informed about everything he has or changes he wants to make.
“And it’s important to understand the value would be a replacement value and not a tax-depreciated figure. As an example, in the shop the heavy equipment would be written off on an accelerated basis, but it still has an intrinsic value.”
One way to save money on insurance is by assigning higher deductibles, says Tschippert. By taking a higher deductible, you would be saving those funds every year.
Say you increase your deductible by 5%, and your insurance costs go down accordingly, Tschippert notes. “If you have a loss in the first year, yes, you would have retained more of a loss than you have saved. But over time, those savings would amount to more than the deductible cost you would be incurring.
“The key is understanding your threshold — what you feel comfortable retaining in a loss. Take your homeowner’s policy. You may have a $500 deductible. That is your individual threshold. You wouldn’t turn in a loss below that amount.
“But for a business, $500 is very low. You should think about taking a deductible up to $1,500, $2,000, $2,500 or even $5,000. There’s going to be a savings that equates back to retaining that higher deductible amount. So you need to think about when was the last time you turned in a loss? The savings that you would have in between policy periods would more than offset any additional deductible amount.”
With insurance, you want to be prepared for your “worst day.” And the worst day is when you have some type of catastrophic-type loss — a large loss to your building, contents, a liability loss, a complete operations loss. These are the types of losses that would jeopardize your business, Tschippert says.
“At the time of the comprehensive yearly review of your building and contents, that’s when we discuss what your limits are. I will say, ‘If you had a fire last night, this is how much I would have paid you for your building, this is how much I would have paid you for contents, for your equipment. Would that have covered everything? Would you be back in business if that’s what we gave you?” That usually leads to a conversation about, ‘Well, no, I’ve done this, I’ve added this piece of equipment, I’ve made these changes, etc.’ It’s a really good place to start.
“The other type of catastrophic loss is liability loss. Today, nobody sues for $50,000 or $100,000. Everyone sues for millions. So it’s really important to look at your commercial umbrella limits to make sure they’re adequate. The difficult question to answer is what is an adequate limit?
“People used to think, ‘My operation is worth $2 million. I’ll have a commercial umbrella for $2 million.’ Well, people don’t care what your limits are; they’re going to sue you based on the extent of their injuries.
“One thing we recommend is taking the dollars you saved for the underlying coverages, the larger deductibles you’ve taken for your building and contents, etc., and use those dollars to purchase higher limits of coverage on the liability side.
“That way, in the event of a catastrophic liability loss, you have limits that are adequate to provide a defense for you to stay business.”
It is important for you or a designated employee to physically walk around the property on a monthly basis to make sure the building and grounds are being properly maintained, Tschippert advises (see sidebar).
“Things you are looking for — are all the extension cords in proper working order? Are the rags being properly disposed of in a metal container with a self-closing lid? Solvents, spills, how are they being handled? Do you have the proper chemicals to clean up spills so there are no slips or fall hazards on the property?
“Do you have proper signage for ‘employees only’ or ‘customer waiting areas’? Look with a critical eye for hazards. You can prevent accidents by being proactive with loss prevention.
“Ultimately, the best cost-saving method is preventing your losses.” ■
An ounce of prevention... Take these 10 steps to head off losses
A big part of saving on insurance costs is preventing losses (claims), says Zurich in North America.
One way you can do that is by setting up a self-protection program that identifies potential hazards in and around your dealership. Combine this program with safety meetings, accident investigation, safety training and workplace rules and you will be able to lower your insurance claims and costs.
Zurich in North America says the elements of a good self-protection program include:
1. Establish a program in writing, explaining the need to maintain a safe workplace, protect employees and control losses.
2. Develop an inspection form to guide the inspection.
3. Select and train designated individuals to coordinate the inspection process.
4. Involve additional employees or create a safety committee whenever possible to raise the overall level of awareness. Consider using a suggestion box or incentive programs.
5. Employees should use a checklist during the safety inspection and submit it to the person “risk manager.”
6. Perform the inspections on a regularly scheduled basis. Zurich suggests monthly or quarterly.
7. Concentrate on identifying unsafe conditions or uncontrolled exposures that could lead to injury or property damage. Include Occupational Safety and Health Administration (OSHA) compliance issues on the checklist as well.
8. Initiate procedures to ensure prompt action to correct any deficiencies noted. The program will fail if problems are identified, but no action is taken.
9. Maintain copies of the reports for documentation and follow-up purposes.
10. Institute an accident investigation program in conjunction with the inspection program. Their goals are similar: identify and correct problems to prevent future accidents.
Following the tips listed above, however, does not guarantee any particular safety outcome as there may be conditions or risks on your premises that may require additional steps to be taken, Zurich in North America points out.
Here are areas that should be on your checklist:
Theft prevention: including key control and perimeter security — fencing, entrance gates, nighttime lighting
Fire prevention: flammable liquid storage in service and body shops, welding and cutting operations, electrical cords and panels and portable fire extinguishers
Workers’ compensation: equipment guarding, such as compressor belt guards, bench grinders, etc., housekeeping, condition of hand and power tools, personal protective equipment — eye protection, respirators, gloves, etc.
General liability: customer waiting areas or lounge, handicapped access (Americans with Disabilities Act), lot — condition, lighting and security, sidewalks.
For more loss prevention ideas, see the Web site www.zurichna.com.zdu.