Why are the policies that you purchased last year to protect your business more expensive this year? Because the insurance market is hardening.
Okay, hardening seems an appropriate word because it is certainly harder for your business to get the insurance that it needs at an affordable cost. But what does that nice bit of industry jargon actually mean?
It means that insurance companies are becoming more selective about what risks they will take and charging more to insure those risks.
Some reasons why are obvious. Insurance companies have had to pay out significant claims for an above-average number of wildfires, hurricanes, and now Covid-19. (Even though many of these claims were denied, it still costs the insurance company to legally defend their position.)
Other reasons are more subtle. Lower interest rates and a fluctuating stock market have impacted insurance companies’ return on investments and lowered their profitability. Working from home has increased cyber risks and civil movements have led to claims being filed against companies for their diversity initiatives or lack thereof.
However, insurance is still a lucrative industry, as the ubiquitous TV commercials, sports stadium sponsorships and high-rise buildings all attest. Especially if the risk can be well-understood and managed.
So perhaps instead of transferring all your business risk to an insurance company that is not particularly keen to take it, you should retain some of the risk yourself.
If you’re willing to increase the deductibles on your policies or self-insure a layer of your employee medical costs, the premiums an insurance company charges you are likely to go down.
You then have two options: 1) simply hold aside money for these risks or 2) create your own insurance company and formalize your role as an insurer. This is known as a captive insurance company.
Creating a captive insurance company can provide better risk management for the parent company because of increased attention, trackable data, and loss control measures. In addition, your own insurance company could invest the premiums, where normally you would lose those premiums to an insurance company, which invests them and retains the investment gains.
RMC Group can help you establish a captive insurance company. We will do a complimentary risk review of your business and the insurance policies you currently have. This will help you decide if these options are viable for you. To schedule a call with an insurance professional, click here.