A recent article in Industry week noted that when it comes to insurance renewal, a 1-2-3 strategy can pay off. Many decision makers may be tempted to compare corporate insurance renewal with personal insurance … where you get the bill and send a cheque, because you don’t really have much choice as changing (life, disability, health, illness, etc.) plans will undoubtably result in a cost increase and benefit reduction, as costs go up (while benefits go down) with age. But this is a bad comparison because corporate insurance plans don’t work like personal life / disability / health plans, rates change with demand and business conditions, and business conditions change all the time.
Business change may not only introduce the need for more insurance (such as when a company begins exporting its products overseas), but may also reduce the need for current coverage (when asset values decline). As the article points out, failing to recognize the impact of new business approaches, whether new strategies that increase risks or downsized operations that alter exposure levels, can cause a manufacturer to make the wrong decision on insurance coverage. And for a large company, this can cost it tens (or hundreds) of thousands of dollars annually (and millions if we’re talking employee group benefit plans). (There’s a reason there are consulting companies which specialize in insurance plan selection and negotiation.)
So what should you do? The article recommends the following 1-2-3 agenda:
- Coverage Type
Examine company operations, compare them to what they were in the past, and accurately assess what needs to be covered. Where are the risks, and what will the recovery cost if they materialize?
- Coverage Limits
How much is at risk and how much insurance is needed to cover it? If you have doubled the size of your shipments, then you might need double the transit insurance. But if you’ve moved to JIT inventory, you might be able to cut your warehouse insurance in half.
- Risk Management Services
Examine a potential insurance provider’s capacity to deliver training, information about industry best practices and expert advice when an emergency makes quick action imperative before you enter into negotiations.
The only thing I’d add is a step 4: hire an expert. The few thousand a day it will cost for an external expert to evaluate your needs and negotiate a better deal could not only save you many times her fee, but prevent financial disaster should an emergency arise.