2005 Winter/Spring Volume No. 5

How to Save Money on Insurance When Rates Sky Rockets

I am sure that you have noticed that insurance rates have been going through the roof for portable restroom operators over the last three years. There have been a lot of explanations circulating for why this is happening. Rumors have said it was due to the expense of insuring against terrorist attacks since 9/11. Others have guessed it was a result of unusual weather patterns that have brought more hurricanes to the south as well as mudslides and wildfires in the west. While these occurrences have certainly had a minor effect, the biggest reason for rate increases was much simpler.
According to Mark Herring of Heffernan Insurance, rates have been going up because insurance companies are losing their shirts in the stock market, just like the rest of us with our IRAs and 401Ks. To see why a dropping market drives rates up, you have to understand how the insurance business works.

Insurance companies collect premiums from customers all over the country, but they don’t just hold this money waiting to pay claims. They invest it widely, in bonds, stocks, real estate, etc. When not paying claims, the money grows. That growth is what fuels their profits. During the late 90’s, when investments were achieving double-digit growth, insurance companies were so profitable that they actually provided insurance coverage at less than their own cost just to keep the premiums coming in to fuel their investments.

However, after the stock-market tanked and interest rates on bonds dropped to near record lows, the insurers were forced to raise rates to recoup double-digit losses in their investments. What’s more, since their investments were losing, they couldn’t offer insurance below cost and needed to raise rates to profitable levels. Natural disasters and terrorists haven’t helped the matter, but the driving force on rates has been the stock market decline.

Now that the market has begun to recover, you can expect rates to stabilize and perhaps even trend lower in the coming year. Of course, this good news doesn’t help pay the bills today. So, we asked Mark Herring what companies can do to keep rates under control during good and bad times. Here’s his advice:

Raise Your Deductible and Plan to Pay Affordable Losses
“The number one thing you can do is to raise your deductible. The fender benders, equipment damage, and petty theft that happen in all businesses is better paid out of pocket. I advise my clients that if they really want to lower their premiums and keep them low, they should consider a $5,000 deductible and think twice before filing a claim.”

Why should you carry insurance if you are not going to use it? Obviously, it will be there when you really need it to save your business if an employee is seriously injured on the job, if a truck is totaled, if a tornado, fire, or hurricane destroys your building or wipes out your fleet, or if you get hit by a lawsuit—frivolous or otherwise.

Paying the affordable losses yourself accomplishes several positive things:
• It keeps insurance rates as low as possible for your business,
• It gives you a tax write-off, since losses are fully deductible
• It forces you to think hard about minimizing losses since they come out of
your pocket.

Things that can be done to minimize losses
As they say, “accidents happen.” However, a carefree attitude isn’t good for your business or your insurance rates. There are several things you can do to reduce your business’s insurance claims, including:

• Lock down assets at night to prevent theft. Bolt locks should be used on all doors.
Hitch locks should be used on rolling assets like flatbed trailers.
• Put break-in alarms and fire alarms in buildings.
• Ask customers to sign damage waivers to help defray the costs of damage done
on the job.
• Try to hire only employees with safe driving records.
• Create disincentives for speeding or driving without seatbelts such as work
suspensions for traffic tickets.
• Award safety bonuses to drivers who go a year without an accident.
• Don’t skimp on truck maintenance, especially brakes and tires.
• Train new drivers thoroughly so that they are skilled in driving with large fluid tanks.
Spend extra time teaching about the danger of rollovers, and stopping on slippery
• Encourage drivers to pull over when using cell phones or radios.
• Require rubber gloves and non-skid boots.
• Encourage drivers to use antiseptic hand cleaner in their trucks.
• Provide training in the proper handling of all hazardous materials including tank
deodorizers, methanol, and untreated sewage spills.
• Start a safety program that includes lessons in proper lifting techniques, how and
when to use hard hats, how to avoid falls and injuries from falling equipment.
• Enroll workers in the PSAI Certification Course (see accompanying article for more
ideas on Safety).

The next time you shop for business insurance get at least three quotes, and look for insurers who know the portable sanitation business. You don’t want to end up insuring a “dump” truck, when you said “pump” truck.

(David Wall’s experience in the insurance Industry is just one of the many talents of expertise our business coaches bring)

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