Insurance: A Grim Prognosis

Jan. 1, 2020
Rapidly rising rates for health care coverage are pandemic throughout the nation, and the impact is especially acute within the aftermarket. Employee health insurance plans are a business necessity if an operation hopes to keep its valued workers. Th

Rapidly rising rates for health care coverage are pandemic throughout the nation, and the impact is especially acute within the aftermarket. Employee health insurance plans are a business necessity if an operation hopes to keep its valued workers. The costs, though, have some companies facing critical conditions with no cure in sight.

“We’re getting killed by this,” says Steve Hoellein, president of Felt Auto Parts Co., Inc. and Felt Automotive Machine Shop, Inc. of Ogden, Utah.

“My health insurance went up 20 percent this year,” Hoellein reports. “For a smaller business like mine that’s equal to $1,000 a month. It’s hard to absorb right away, and I don’t have a lot of answers about what we’re going to do. It’s getting tough to retain your long-term employees. Our biggest concern is health insurance.”

The two Felt companies employ 24 people and operate six vehicles. Two employee spouses have ongoing medical needs.

Premium costs are split 50-50 between management and the workforce. “We’re all in this together,” Hoellein points out.

Shopping around for a better rate has thus far failed for the Felt enterprise. “If you put it up for bid, another insurance company will bid it sky-high,” he says. Brokers frequently cold-call offering bargain rates, but the family illness issues are akin to a quarantine notice. “They’re gone — you never hear from them again,” Hoellein recounts.

In 1999 a Blue Cross family plan with dental coverage cost less than $380 per month for the nine McLaughlin Automotive Stores in Rhode Island. Ownership picked up the tab. Nowadays, the coverage is not as comprehensive; it carries a higher deductible and costs $900 a month. The company pays 60 percent of the premiums.

“It’s an enormous problem for us,” according to president and owner Walter McLaughlin. “We’re not making two-and-a-half times what we made in ’99.”

Employees at the six Red Rooster Auto Stores in Minnesota belong to a Health Maintenance Organization. The company bids on a new HMO policy each year. “Fortunately we have a fairly good history because we’re mostly young males with good medical histories,” says Roger Johnson, chief financial officer.

However, unless the galloping costs go into remission soon, Red Rooster may be forced to go with a much higher deductible and reduced coverage. “I see that as the direction things are going. The employees will have more of a stake in it,” says Johnson, raising the disturbing specter of a worker having to choose medical procedures based on price rather than a doctor’s diagnosis.

Elusive elixir

In some states, rate relief has been obtained through health plans administered by state associations with strong financial bases. Businesses elsewhere have little recourse except to shop around for the best deal, because federal law currently prohibits national associations from offering policies across state lines.

A legislative elixir of sorts is brewing in the United States Congress. The Small Business Health Fairness Act of 2003 passed the House of Representatives last summer. The companion piece, Senate Bill 545, is bogged down in committee. At last count there were no Democrats signed-on as co-sponsors.

The Automotive Aftermarket Industry Association (AAIA) and other organizations are urging everyone to contact their senators in support of this measure, which would permit national association group plans that spread the risk beyond state borders.

“This is a business-based solution,” explains Jim Hilbert, director of membership for the AAIA. “Passage of this bill would allow small businesses to lower insurance costs for themselves and their employees.”

A united effort from the aftermarket is needed to help push the Senate into action. “It’s going forward; it’s hard to say what will happen in an election year, but this is an issue that won’t go away,” Hilbert contends.

If S.B. 545 is enacted, the AAIA is unlikely to implement a national plan that encroaches upon coverage provided by state associations. “We’re reluctant to compete with them,” Hilbert says. The AAIA will work to offer programs compatible with industry needs, he stresses.

Cut to the chase

Meanwhile, aftermarket risk managers should contact their respective state associations about procuring health insurance, according to Randal Ward, president of the Automotive Aftermarket Association-Southeast (AAAS).

“I want you all to look to your state associations,” says Ward. “Together you can build something” if a health plan is not yet being offered.

Active dues-paying participation by the membership is required if such an initiative is to go forward, he points out. “There are state associations that don’t receive enough support,” Ward notes. “You have to have the wherewithal, which means money” to set up a program.

For decades the AAAS has offered its own health care coverage in Alabama. “We’re an example of self-insurance that works,” says Ward. “Federal law has ridden my back all these years, but we’ve succeeded.”

Members pay the premiums, which are administered by insurance professionals. Passage of the Small Business Health Fairness Act would allow the program to expand beyond Alabama to other southern states. “It would make associations attractive to insurers,” Ward says, and the participants could pool their resources in search of more affordable health care solutions much like the programs now available to large corporations and labor unions.

Options and requirements for workers compensation vary widely from state-to-state. The AAAS workers comp program has greatly benefited the membership. A pattern of low-risk has brought annual

dividends of up to 67 percent. “We have people who pay pennies on the dollar year-over-year” because of the discounts obtained, according to Ward.

“If you have a decent record you’re going to get a 60 percent discount,” reports Dick Bell, president and owner of Bell Frame and Brake, a warehouse distributor of heavy-duty suspension parts with one location in Dothan, Ala.

The best thing for Bell’s business was joining the AAAS, he says. Both workers’ comp and health care are covered with manageable and relatively stable pricing. “Before that, every year we went out and re-bid our health insurance because it kept changing,” Bell recalls.

A concentrated, in-house effort to minimize potential risk for all types of claims is standard operating procedure at Walter S. Wright Automotive Parts, a fourth-generation two-step WD with four locations throughout the Birmingham, Ala., area.

“We cut to the chase and we get down and focused,” says the president, Brian Keith. “We have a real handle on personnel issues and problem areas.”

The economic fallout from 9/11 has driven up the cost of insurance throughout the marketplace, Keith explains, making it imperative for the business to put a lid on situations that could bring claims. (The performance of the stock market plays a role in forming insurance rates as well. The money paid for premiums is ideally invested to pay claims and earn profits.)

Significant cost and customer service benefits were gained four years ago when Walter S. Wright switched to a contract service for its drivers. “Most of our claims were with deliveries,” says Keith.

The driver provider has been in business for 20 years, and “they get a better person” to man the wheel. Also, the Wright outlets always have available the correct stable of drivers for a given day’s workload, plus they are consistently polite, competent and professional with the customers.

“They’re not angry, wound-up and uptight — like the type of people we had driving trucks” when the road crew hiring was handled in-house,” says Keith. “We’ve eliminated complaints from customers and we’re never without someone in the driver’s seat.”

Insurance liability issues throughout an organization can be reduced when management takes an active role in carefully vetting job applicants and monitoring work conditions and practices within stores or shops.

“The insurance company loves you if you don’t file any claims,” says Ward. Background checks are key, and common sense should prevail, such as not letting 16-year-olds deliver parts.

Ward says top executives need to take a day-to-day interest in the practices of their subordinates.

Neat and tidy

Taking advantage of training programs offered by government agencies, industry associations and insurance carriers have proven to be effective strategies for reducing business risks and premiums.

“You might think it’s a pain in the neck, but it’s something you should do,” according to McLaughlin in Rhode Island. “Our people in the warehouse go to the fork lift safety classes and everyone who comes to work with us is issued a back belt and we give them instructions on how to do lifting. You should be neat and tidy about your building. You don’t want things where people can trip and fall.”

An operation’s training and procedural methods should be comprehensive and in writing, Hoellein advises. “That makes all the difference in the world. If you want the best rate you’d better be able to prove that you have programs,” he notes. “If you let the insurance company know what you are doing it pays for itself hands-down.”

Within the aftermarket, vehicle-related incidents are a dominant driver of rising insurance rates — more so than issues relating to the buildings and inventory.

Here again, cooperating with your insurance carriers can reap benefits.

“I believe in partnering with them,” says Hoellein. “They can offer good suggestions.” At Felt, for example, the drivers make a point to take routes that are not on busy, high-risk roadways. (See “Dealing with drivers” sidebar.)

“We’re like Domino’s Pizza with the way we run around here,” McLaughlin observes. On a typical day, 38 company vehicles are out on the streets. “From an insurance company’s viewpoint we’re definitely a high risk — we pay through the nose for our insurance.”

Going for brokers

Obtaining the best insurance rates involves a certain amount of research, and you have to decide whether to remain with your current broker. A new agent may bring a bargain, yet a veteran vendor may be desirable because of the accumulated knowledge of you and your business.

At Red Rooster, a key aspect of the company’s philosophy involves maintaining partnerships. “We build core relations with others,” Johnson explains. Two insurance brokers are used, one for health insurance and another for the rest of the policies. “We will periodically do an evaluation based on what we hear from others in the industry,” he says.

“I stick with the same one because he knows my track record and he’ll go to bat for me,” Hoellein says of his insurance broker. “He’s constantly watching the market looking for insurance companies that might be hungry for my business. That’s what they get paid to do — go out and work for you.”

Begin looking early-on if you are unhappy with your agent or provider and wish to make changes, McLaughlin advises. “Start the process a good four months before your policy expires. Have them give you a copy of any losses so you can show it to your prospective insurer,” he says.

“You should definitely shop for your insurance,” according to McLaughlin. “If you don’t shop around for your insurance they’re going to keep raising the premiums on you.”

Numerous variables apply when insurance rates are computed, depending on the area of the country you’re in, your claims history and a host of other factors. “Do your homework on your policies,” he says.

Have available the license data on your drivers for comparison-shopping. “You can’t have someone driving for you who has a DUI,” McLaughlin cautions.

In addition to covering your buildings and fixtures, “make sure you carry enough insurance on your inventories,” he continues. Find out how much money you’ll actually get should disaster strike. “People have to be sure what the payout will be if there’s a casualty. You’ve got to be sure that you have a good dialog with your insurance broker.”

Be extra cautious if you own a machine shop, which can result in unnecessary insurance costs by being falsely labeled as a manufacturer or fabricator.

“The hardest thing is trying to convince an insurance company that I am not a manufacturer,” Hoellein reports. “I’m grinding valves. We are not a fabricator. We do not make parts — we machine them,” he elaborates.

“Get the price back” on any machine shop policy before giving a go-ahead for coverage, Hoellein urges. There may be a classification error that needs correcting.

Digging your heels in to challenge some unfounded increases and rolling up your sleeves to truly examine your policies and operations are vital for any distributor hoping to keep insurance rates in check. Without close scrutiny, instead of digging in your heels, you may find yourself digging an early grave for your business.

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