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Reassessing Risk

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Perhaps twenty years ago or even less, you didn’t have to give a lot of thought to what you were paying for insurance. Premiums were relatively low and there were many companies to choose from. But times have changed. Premiums are up significantly, insurance companies are consolidating, and many have moved out of states where regulations made the business less profitable—or there just wasn’t enough business to warrant being there.

Today you’re often facing higher deductibles and co-pays for health insurance and higher deductibles for commercial and liability insurance. You may also be finding fewer alternative companies to contact for better deals. In a market like this it may be time to look more closely at your insurance costs.

“Lowering premiums is a worthwhile objective, but an equally important objective should be lowering risk.”

If you have a solid cash flow, some cash reserves and other financial resources, you may want to rethink relatively high premiums with a $250 or $500 deductible that a smaller less secure business must carry, and instead shift to a $1000 deductible policy with lower premiums. In fact, you may even want to contemplate self-insuring some risks and eliminate some premiums altogether. It’s likely that you have some older equipment that’s been fully depreciated. Why pay to insure it at all? It may be time to reassess everything you currently insure to see if it makes sense to insure them at all—or to pay as high a premium as you do now.

The opposite extreme might be areas in which you are underinsured. Given today’s litigious society, business owners are often seen as affluent targets for frivolous lawsuits. Shops carrying relatively low liability insurance may really be risking a great deal more than many years worth of premiums. A boost to a two or three million-dollar excess liability coverage policy could actually save your business in the event of some catastrophic situation where you or your shop’s personnel could be liable. There may be ways you could reduce other premiums to provide the cash for higher real risk coverage.

A shop near where I live was in a high crime area. The owner wisely had a high fence with barbed wire on top. He had security alarms at every entrance and paid a security patrol to check the place periodically after hours. He arrived one morning, unlocked his well-locked gate, and entered his shop to find every vehicle had been stripped of radios, entertainment systems, GPS systems and anything else of value that could be taken. The shop’s computers were also all gone. The thieves had managed to put some kind of temporary bridge across from the roof of an adjoining building to this shop’s roof. They then drilled down through the ceiling and pulled all of the stolen items up through the roof. The cost of this theft far exceeded the liability insurance of the shop owner and it eventually forced him out of business. If a shop has a dozen vehicles on the floor at any given time with a value of more than $200,000, and liability coverage is only half of that, the owner is carrying a significant amount of risk he might never have considered.

Lowering premiums is a worthwhile objective, but an equally important objective should be lowering risk. There are many ways to lower risk, but not all will result in lower premiums initially. They should, however, reduce claims and in the long run cost your shop less. If you provide health insurance, for example, the health of your employees can affect your overall costs. An investment in providing employees with training and information in health improvement programs could prove cost effective. These programs could improve eating habits, reduce smoking, and encourage exercise, ultimately resulting in fewer medical claims.

Another shop in my area did nearly $12 million in sales yearly. The shop had numerous employees. The owners told me their biggest problem was keeping their employees from stealing them blind. They wouldn’t say whether or not their insurance covered any of their theft loss, but in a shop where there is significant employee turnover, theft risk is certainly higher than in shops where long-term employees have demonstrated loyalty and honesty over the years. Greater attention to hiring practices, supervision and employee training might have reduced their risk significantly.

Better safety programs, training in lifting techniques, and ways to avoid hazardous tool and equipment arrangements could reduce risks and possible accident claims and worker’s comp claims. Employee training can be costly, but if approached from a viewpoint of improving health, safety practices, and theft prevention, a shop should be able to significantly lower risk, reduce claims against the shop’s insurance, and probably lower premiums in the long run.

Tom Franklin, author of Strategies for Greater Body Shop Growth, has been a sales and marketing consultant for more than 40 years.

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