- THE MAGAZINE
What affects your rates, and what can you do to affect the cost of your insurance as an individual consumer? Over the years you have undoubtedly noticed that the cost of your insurance has rolled like the tide. Sometimes rates rise like a tsunami and other times you enjoy a low tide, e.g. the rate reductions of the last ten years in Workers’ Comp rates.
You don’t need me to tell you that the first thing you need to do as an employer is run a tight ship, safety first, mind all the loss-control recommendations you’ve been given over the years, etc. Next, make sure you are with an agent who is staying on top of the marketplace. Ask your agent to disclose which specific program they are quoting. Your agent has access to programs offered by Insurance Program Managers, and there are trade association programs that might be exclusive to an association to which you just happen to belong. You will be surprised by how many programs there are that have been developed for the industry in the last few years; there are far too many to list here.
Something that many consumers know but tend to forget is that the insurance industry makes most of its profit in investments. One of the biggest indicators of what you can expect to pay for insurance is how well the stock market is doing. Basically, the cost of insurance and the stock market sit on opposite ends of a teeter totter. When the stock market is up, the cost of insurance is down, because insurance companies are doing well with their investments. If the stock market is down, insurance companies have to charge more for their policies in order to avoid a loss for their investors and to remain solvent enough to pay claims.
Keep an eye on other insurance market indicators as well. Is your agent only offering you a only one renewal quote in the same company? Is your renewal premium the same as last year? Is it higher? Lower? Are you being offered alternate quotes?
Another market indicator is legislative action. For example, Workers’ Comp rates in the state of California are as low as they were about 10 years ago. We have been experiencing two to three Workers’ Comp rate reductions per year; many of these reductions were driven largely by legislation passed since Arnold Schwarzenegger was elected governor. These legislative changes made it a whole lot harder to turn in fraudulent and post-termination claims. Prior to these changes, these two elements alone helped push Workers’ Comp rates through the roof. The legislature could also affect benefits paid to injured employees, so keep an eye out for any future attempts to increase benefits; they will have a direct impact on your rates. Anther factor to watch that will drive your rates up are increases in medical costs, and we all know where they have been heading.
Now for the bad news. On July 1, for the first time in 10 years, some insurance companies did not take the full Department of Insurance recommended workers’ compensation rate reduction. This is our first market indication that Workers’ Comp rates are leveling out. There doesn’t seem to be any more room for them to fall. This, combined with the recent series of stock market corrections, indicates that we may be at the end of a soft Workers’ Comp market, and we really don’t know how much longer rates will stay as low as they are, especially with increasing health care costs. At the very least, it appears that Workers’ Comp rates are leveling out.
So what to do? The best protection from a pending hard market or increase in Workers’ Comp rates is buying power. The bigger you are, the lower the rate you can command. A lot of cleaners used to participate in a group program when the rates were high. But as rates fell, you no longer saw the need to participate, and the groups splintered and broke apart. Well, participating in a group program is still the best way to insulate your business from high rates. But waiting until rates go up is a big mistake. Pull back together now; once they go up it will be difficult if not impossible to get them back down. It is very simple: the larger the buying pool of the group program, the larger the number of insurance companies there are that will compete for the entire group program, and the slower the rate of increase.
Group rates are negotiated as a whole, with credits applied that no one participant could qualify for on their own. In the past if you have asked yourself, “Why should I join an association?” this is the single biggest reason why you should. If an association could get all its members to understand this one concept – and get them to commit and participate in a group program – their rates could be kept substantially lower, and their rate of increase would be substantially slower than non-members as rates begin their inevitable rise.
Now is the time to band together. It’s your best chance to keep rates where they are.