Before it runs its course, the crisis in liability insurance will no doubt drive many chief executive officers to their wit's end. And it may drive some out of business altogether. There are things that can be done, however, to help a company weather the storm.
Don't just stand there, do something! It's a sellers' market, and a lot of buyers are going to walk away empty-handed. Unless you have already decided to go bare, that is, do away with insurance, you would be well advised to start shopping for insurance as soon as possible -- and be prepared for the possibility that you may not be able to get all the coverage you want.
Be wise, strategize. In any competitive market, it's a good idea to have a plan for getting what you want. If the insurance you want is simply not available at a price you can afford, come up with a strategy. You may, for example, want to consider higher deductibles, or even going bare in certain areas of coverage, while beefing up in-house risk management -- such as Garden State Brickface & Stucco Co. is doing (see main text).That way, you will be in a stronger position to bargain for broader coverage and lower rates the next time around.
Go for broker. Many small companies make the mistake of dealing with a large number of brokers, on the naive assumption that they should have people covering as many angles as possible. Underwriters, however, look askance at companies that have a lot of brokers on the street. The practice also gets in the way of developing a solid, longer-term relationship with the one person who can best help you get through a tough market. Better to use the minimum number of brokers necessary for the types of coverage you need.
Know your underwriter. What goes for brokers, goes double for underwriters.The best policy is to find a good underwriter -- in terms of service, coverage, and, of course, price -- and then stick with it. Underwriters tend to be suspicious of companies that constantly shop around: They assume that the client will make a claim, then leave. Moreover, by developing a long-term relationship with an underwriter, a company can establish a good track record in critical areas, such as safety.
A side from these general rules, you may want to think about one of the specific measures that other small companies have taken to get themselves through the insurance quagmire. These include:
Going bare. This used to be considered an extreme measure, and it still carries a lot of risk. If you do decide to go bare, you had better plan on covering yourself in other ways -- paying strict attention to product quality, for example. (See "Life Without Insurance," page 79.)
Buying insurance through a trade association. Many trade associations and professional organizations have insurance pools for their members. The groups work through a small number of brokers, and deal with a small number of underwriters.Because the groups represent so many customers, they have more leverage than individual companies acting on their own.That leverage helps to keep premiums down and protects members against loss of coverage altogether. (See "Strength in Numbers," page 80.)
Joining a cooperative. Member companies contribute fees that serve as the cooperative's assets, which they control. Barring disaster, the assets are more than enough to cover claims against members, with money left for investing. Investment income helps to keep premiums down. (See "Group Rates," page 84.)
Managing risk. You can minimize the need for, and the cost of, liability insurance by having someone on staff whose sole responsibility is to spot (and fix) the things for which a company might be held liable. By the same token, small companies are increasingly calling in outside risk-management consultants to conduct periodic, comprehensive "risk audits," aimed at reducing the likelihood of accidents. (See "Managing Risk," page 85.)