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Why it's vital CMs re-evaluate their insurance coverage today

2020 was a challenging year for the U.S. insurance industry. We faced a global pandemic, domestic civil unrest, economic uncertainty, a volatile election cycle, and a multitude of weather and climate disaster events, several with losses in the billions. These events accelerated an already two-year trend where the insurance marketplace has transformed into a decidedly less friendly environment for insurance buyers. 2020 was a challenging year for the U.S. insurance industry. We faced a global pandemic, domestic civil unrest, economic uncertainty, a volatile election cycle, and a multitude of weather and climate disaster events, several with losses in the billions. These events accelerated an already two-year trend where the insurance marketplace has transformed into a decidedly less friendly environment for insurance buyers. 

These developing insurance challenges should encourage component manufacturers (CMs) to take a fresh look at their portfolio of insurance policies and coverages, re-evaluate what they are proactively doing to make themselves more insurable, and advocate for better coverage from insurance companies. Let’s start by looking at the challenges and then explore what you can do today to positively take control of the situation.

The Industry is Difficult to Insure

While insurance costs have fluctuated less drastically than lumber costs have this year, in some instances it may be as hard to acquire going forward. Over the past two years, several insurance carriers (and their capacity) have left the market. This has made reinsurance more expensive and underwriting stricter. Premiums are also increasing for nearly every line of insurance. Figure 1 illustrates the projected average premium increases all industries in the U.S. should expect to see in 2021; as you can see, no type of insurance policy will be immune. 

Compounding the problem of a hardening insurance market, component manufacturing is currently considered by insurance carriers to have a higher risk of loss in several lines of coverage. Fire hazards impact commercial property; construction defect litigation and the opportunity for accidents during delivery and installation impact general liability; delivery requiring large commercial motor vehicles hauling unusually-sized and -shaped loads impacts commercial auto; the risks facing general liability and commercial auto lines impact umbrella coverage; and, the physical labor requirements, heavy machinery, material handling, and delivery aspects of the industry all impact workers’ compensation.

It shouldn’t come as a shock then that over the last six years, several insurance companies have completely stopped writing CMs (see Figure 2). Fortunately, you are far from powerless, as there are many factors you can influence that will have a positive impact on insurability and premium costs.

You Are Not Alone

To help you navigate this hardening market, you should seek an insurance and risk professional who fundamentally understands your business and its unique risks and will advocate to insurance carriers on your behalf. This advocate needs to be able to tell your unique story to insurance carriers in a way that will best position your business come renewal time. Obviously, they should also thoroughly understand the dynamics of the current insurance market cycle and how to navigate businesses through a hard market. 

It would also help if there were more brokers and agents who fully understood the component manufacturing industry and the dynamic insurance landscape to provide targeted loss control solutions to the industry. Not to mention more insurance professionals actively advocating for the industry to insurance companies, to provide more interest and competition to drive costs down. If your current insurance and risk professional isn’t going the extra mile to truly understand you, and hence make the insurance companies understand you, then this is the perfect time to find a better advocate.

To help you navigate this hardening market, you should seek an insurance and risk professional who fundamentally understands your business and its unique risks and will advocate to insurance carriers on your behalf.

Make Yourself More Insurable

Below are some ideas on how you can immediately impact what your company looks like to an insurance underwriter, when they are determining your insurance premium rates at the time of renewal.

Commercial Property

• Work with your insurance professionals to begin the renewal process early. Many commercial property insurers are seeing an increased submission volume. Timely, complete, and quality submissions are vital to ensure your application will be reviewed by underwriters.
• Gather as much data as possible regarding your existing property loss management techniques. Be sure to work with your insurance professionals to present loss control measures you have in place.
• Conduct a thorough inspection of both your commercial property and the surrounding area for specific property loss management concerns. Implement additional mitigation measures as needed.
• Develop a documented business continuity plan (BCP) that will help your organization remain operational and minimize damages in the event of an interruption. Review your business interruption coverage and limits.

Commercial Auto

• Examine your loss control practices relative to your fleet and drivers. Enhance your driver safety programs by implementing or modifying policies on safe driving and distracted driving.
• Regularly retrain drivers on safe driving techniques.• Set a driving standard for your drivers.
• Consider technology solutions, such as telematics, to strengthen and supplement other loss control measures.

Due to a variety of factors that have hardened the insurance market, almost every line of coverage for CMs is going to become more expensive and harder to find moving forward.

General Liability

• Work with your insurance professional to educate yourself on key market changes affecting your rates and how to respond using loss control measures.
• Review pandemic-related coverage restrictions and protocols.
• Take the appropriate steps to reduce your risks whenever and wherever possible, making your business more attractive to insurance underwriters.

Workers’ Compensation Tips

• Implement safety and health programs to address common risks, especially  when using a loss-sensitive workers’ compensation program.
• Reevaluate the effectiveness of pre-loss safety initiatives and post-loss claims handling procedures.
• Conduct routine safety training for employees.
• Establish workplace wellness initiatives aimed at preventing or treating chronic health conditions and improving the overall well-being of your staff. These initiatives can help reduce the risk of your workforce developing comorbidities.
• Develop an effective return-to-work program that properly supports employees in the process of healing from a work-related illness or injury and resuming job duties following their recovery.
• Ramp up your organizational safety efforts and injury-prevention methods — particularly when it comes to preventing falls, motor vehicle accidents and struck-by incidents, lockout/tagout, and saw safety — as these types of accidents are most likely to result in serious claims.

It is imperative CMs re-revaluate their current coverages and work with a knowledgeable and committed insurance and risk professional to identify areas where they can improve their insurability and advocate for
adequate coverage at a fair cost.

Bottom Line

Due to a variety of factors that have hardened the insurance market, almost every line of coverage for CMs is going to become more expensive and harder to find moving forward. It is imperative CMs re-revaluate their current coverages and work with a knowledgeable and committed insurance and risk professional to identify areas where they can improve their insurability and advocate for adequate coverage at a fair cost. 

Rich Langton at Bowermaster & Associates is an SBCA endorsed insurance broker who has worked with the component manufacturing industry for 21 years. He can be reached at rlangton@bowermaster.com.