Behind Rising Insurance Costs: Expert Advice for Business Owners on Effective Risk Mitigation
As a business owner, one of the things that might keep you up at night is the balance between managing risk in your business and the cost of insurance. I have been hearing from business owners in recent months that they are seeing insurance costs rise. What’s driving these changes, and how can you work with your insurance advisor to ensure you have the coverage you need while not breaking the bank? I asked a couple of my go-to insurance experts to weigh in.
Establishing and managing coverage
Irv Cohen, Risk Advisor and Partner at North Risk Partners says, “Communication is key because the risks businesses are managing change from year to year.” Advisors can work with their clients to forecast changes to coverage and premiums to manage risk. Having an insurance partner who understands how your business is growing and changing can help you anticipate and protect against newer risks.
Insurance advisors consider several factors when looking at business risks. Shalin Johnson, Vice President of Business Insurance at Marsh McLennan Agency, shares a few of the areas that insurance advisors look at when reviewing a business’s risks, “When reviewing a client’s coverage, we assess several factors including how a business gets paid, we took similar sized companies in the same industry to benchmark performance and risk, and we work through risk scenarios to envision ‘what’s the worst that could happen?’”
According to Cohen, the business’s goals are also considered during this analysis. “Many clients are still in growth mode, and insurance needs to be tailored in a way that supports growth and manages the associated risk with new product lines, updated equipment, and increased cyber risks.”
Addressing the cost question
Why are insurance costs increasing? Cohen says the short answer is that claims are increasing. More claims are coming from a variety of sources. Johnson lists four areas where he is seeing increased claims activity, “First, inflation drives up claims because the costs to repair or replace the insured property or equipment is increasing. Next, the level of property claims is accelerating due to an increase in large-scale severe weather events – this increase in frequency, combined with an increase in property valuation changes, is a major cost driver. Third, corporate litigation and large verdicts, referred to as ‘social inflation,’ are increasing liability claims. And finally, cybersecurity and data privacy are growing areas of risk and claims for many businesses. Ransomware gets the headlines, but other types of phishing attacks cost businesses money and time.”
Cohen shared recent examples of cost and scope of cyberattacks, “It’s not only Fortune 500 companies that are experiencing cyberattacks. Small and medium businesses also have cyber claims. Small manufacturers, providers of professional services, and even contractors are being targeted. I am dealing with several claims, one of which will be a million dollars, which started as a simple email with an attachment that was opened by an employee.”
Balancing coverage with budgets
The good news is that a portion of the cost of appropriate insurance coverage is in business owners’ control. Johnson says that a client’s work to manage and mitigate risks should be reflected in their premiums. This can include workplace safety programs, property security, and rigorous management of contracts and contractual liabilities. Cohen adds that the structure of coverage can also influence the immediate out-of-pocket costs, such as shifting a higher deductible. He agrees with Johnson’s thoughts about the efforts clients can take to mitigate risk and notes that advisors often have HR, legal, and safety resources that clients can access to keep their costs down. Reading between the lines, these experts are saying that a risk prepared for and avoided is one that business owners and their insurance advisors can worry (and pay) less about.
It’s evident that the landscape of business risks is dynamic. Collaboration between business owners and insurance advisors is crucial in navigating and managing these uncertainties. As a lender, a company that has a good understanding of the business risks it faces makes for a good client, particularly in evolving and volatile markets. At Scale Bank, we want to support your growth goals in a way that sustains your business for the long haul. That’s why we stay connected to experts like Irv and Shalin and why understanding clients’ approach to risk management is part of our due diligence process when it comes to extending credit.
Article written by: Jeff Campbell
SVP Commercial Loan Officer at Scale Bank
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