Risky Recession

Shore up insurance coverage during economic downturn

The state of the economy is less than rosy. Lack of investor confidence, corporate failures, layoffs, declining stock prices and tightened credit markets have made for an interesting year. With current market conditions likely to spill over into 2009, businesses are looking at ways to shore up their finances and ride out the stormy economy. Risk management efforts, especially insurance coverages, are more vital for survival in a poor economy.

For one, economic crises tend to result in more claims. Insurance carriers are seeing more claims arise from business failures where partners turn on each other, suppliers go unpaid, and customers and employees suffer. Today, more people look to insurance to make them whole, regardless of what is specifically covered by an enterprise's policy. Even a small business failure can generate breach of contract, wrongful termination, discrimination, and libel and slander suits — disputes that in the past may not have ended up in litigation but were settled with a handshake.

In a sluggish economy, insurance claims tend to increase both in frequency and severity. Therefore, having the right insurance coverage means financial protection for such claims.

Fortunately, insurance is one of the more affordable business expenses these days. According to the latest Commercial P/C Market Index Survey by The Council of Insurance Agents & Brokers (CIAB), commercial property/casualty premiums saw decreases during third-quarter 2008, although there are some indications that insurance premiums are leveling off.

The insurance cycle is notorious for its ups and downs. During these “soft” periods, competition among insurance carriers remains strong, and pricing often declines. When the market starts to “harden,” prices tend to increase.

As the market tries to stabilize, waste businesses can make wise use of their time by preparing their insurance portfolio for the next swing in the cycle. This preparation should involve a review of policy coverages and terms after carefully and realistically assessing their risks. For instance, especially in this economy and in light of a potential increase in claims, a review of directors and officers, errors and omissions, and product liability coverages is wise. Additionally, waste businesses can:

  • Shop wisely

    Prices vary from company to company, so it pays to shop around, compare prices and get a feel for the types of services insurance carriers provide would provide. It is important to pick a company that is financially stable. Companies in specialized industries, like the waste industry, should also look for an insurance carrier that is most familiar with their specific risks. Additionally, as a result of competitive pricing, some businesses choose to buy other coverages that they might not buy, including specialized coverages, that they might not buy when premiums are higher.

  • Continue to stress risk management/loss reduction programs

    Great accounts with excellent loss histories and above-average data can still get reductions. When underwriting policies, insurers consider what programs a business implements to minimize losses from fire, theft, and employee and customer injuries. These can include safety programs, disaster preparation, or having a strategy for hiring drivers with good driving records.

  • Keep in touch with your agent or broker, and double-check coverage scope and limits

    An insurance professional can provide invaluable advice to help protect your business. It is important to keep your insurer informed about any changes in your business operations. This includes major purchases, expansions or changes in hiring. Part of the decision about how to tweak your coverage depends on the nature of the business and how the business changes.

Kate McGinn
XL Specialty Insurance Company