Some types of insurance coverage are now almost impossible to obtain -- notably, environmental-impairment liability and pollution coverage in a general-liability policy. "Any firm that handles chemicals is going to get hurt," says Daniel Katzenberg, finance and economics editor of Chemical Week magazine. One small chemical distributor in Akron had its pollution-liability coverage abruptly canceled last March. It finally found another underwriter -- which agreed to provide one fourth the coverage at three times the price.
Product liability is another hard-hit segment. There has been a proliferation of expensive lawsuits against manufacturers of faulty, or allegedly faulty, products. Some are no doubt justified, but many appear to be flimsy nuisance claims, which the plaintiffs anticipate settling out of court. In 1974, the average product-liability award in the United States was $345,000; in 1984, it topped $1 million. According to Steve Settle, director of loss, prevention, and control at the National Association of Manufacturers, manufacturers are seeing their product-liability premiums rise anywhere from 200% to 500%. "Some premiums are going up 1,000% or more," he says.
Meanwhile, accountants, doctors, and other professionals are having similar troubles with professional liability coverage. At the same time, small trucking and construction companies are finding it hard to obtain vehicle-casualty insurance. "Since 1984, the cost of vehicle-casualty insurance has gone through the roof," says Samuel Gill, director of the American Trucking Association's finance council. "It's a major problem, especially for small firms that have a lot of vehicles and depend on them."
One such company is Olson Transportation Inc. The $18-million trucking and warehousing concern in Milwaukee had its vehicle-liability coverage canceled last April -- despite the fact that the company had a long and superb safety record. While Olson eventually found a new underwriter, its premiums have gone up 600%.
Such problems are certainly daunting, but some companies are finding ways to cushion the blow. A case in point is Garden State Brickface & Stucco Co., a $25-million-a-year brickface, remodeling, and construction business in Roselle, N.J.
As company president Larry Goldberger tells the story, it all began one morning in June when "Marty, the guy in charge of buying my insurance, came scurrying into my office. He tells me our underwriter is going to raise the cost of our umbrella insurance policy next year, from $10,000 a year to $70,000 a year. It's obscene!"
One of the major factors, it turned out, was the vehicle-casualty component of the company's umbrella policy. Garden State, one of the largest businesses of its kind in the United States, performs high-quality, customized exterior resurfacing. "Insurance carriers just lump us together with run-of-the-mill construction firms," complains Goldberger, 49. "I like to think we're different."
They may indeed be different, but in the messy, sometimes arbitrary, world of liability insurance, perceptions often count more than reality. And the fact is that Garden State keeps 160 cars, trucks, and vans on the road, all of which must be insured.
That presents particular problems in Garden State's case, because the company has customized its trucks to perform many tasks. "We made this truck over so it can provide everything a work crew needs," says Goldberger, as he inspects one of his company's garages. He places a hand on a truck that has different pieces of machinery tacked on, like a giant modular toy. "This can mix cement, supply men with sand, nails, custom metal accessories, you name it," he says proudly. "But it makes insurance people nervous."
To cope with the current crisis, Goldberger has developed a strategy aimed at reassuring his insurance carrier, in hopes of eventually getting better rates. For openers, he plans to raise the deductibles on the company's overall vehicle-casualty coverage from $500 per vehicle to roughly $2,000, and to dispense with collision coverage altogether. "We'll just have to do our own repairs," he says, adding that Garden State already has adequate garage facilities.
At the same time, he will place a greater emphasis on driver safety. Although the company, he says, has had an excellent vehicle-safety record since its founding in 1953, Goldberger believes that it can do even better. In the future, the safety records of applicants for driving jobs will be carefully screened and shown to the insurance carrier, which will be monitoring the process. Drivers who are hired will then undergo a strict safety orientation. In addition, Garden State has an in-house driver-education program, including classes and training films. It will also run various safety contests -- for example, giving awards to drivers who drive a certain number of miles without incident. Strong disciplinary measures will be taken when an accident does occur.
The effect will no doubt be to change life at Garden State Brickface in ways that Goldberger never planned, but he does not see any alternative. "Insurance used to be a relatively simple matter of having a broker place a policy with an underwriter," he says. "Now it's a matter of finding a policy that allows you to make a living."
