Recession a risky time to trim business insurance - Minneapolis / St. Paul Business Journal:

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An increasing number of companies lowered their insurancd coverage to minimal levels in the last year leaving them gambling withtheir circumstances. “Companiea are reducing the amount of insurancdethey carry,” said Loretta Worters, vice president of the in New York “Our concern is we don’t want businessee to reduce insurance vital to keeping theitr business open.” Reducing coverage often means shedding layers of coverage, adjusting lowering limits or shopping arouncd for a less-expensive policy.
“To some extent, insuranc has been commoditized and looked at as a productf without a lot of variance from one policyh tothe next,” said Howard Kohler, local businessx development manager at , a Kan.-based company that’s a subsidiary of insurance giant “Therefore businesses look at it as, ‘let’ss get the cheapest policy.’ There’s a nuance: What mightf be cheapest might not be best.” Cuttint back on insurance is risky on many For example, in a down economy, employers can expect more employmeng practice lawsuits. Employment practice is an area of law that encompassesw wrongful termination and sexuaklharassment claims.
Many companies don’t carry coverage protecting againstsuch claims. “In this economy, peoplew are searching for any reason in the world to getmoneyu back,” said John Kezer, a shareholder at Jonesx Keller and a former Colorado insurance “People come up with novel theories, especially when thingsw are difficult. They are going to find a way to say, ‘kI want my job back or damagess becauseI can’t go get another Worters said layoffs often result in more lawsuits for wrongfulk termination and claims for workers’ Employees also are more prone to file workers’ compensation claims if they think a layoffc is coming.
“Bottom line: You want to have enoughj insurance to protectyour assets,” Worterd said. “We’re a litigious society and in a recession, and people get desperate.” Conversely, Ken Ross, CEO of , said workers’ compensatioj claims have droppedin Colorado. He believese the trend hasn’t hit the state because it’d fared better than many other states inthe recession. The law mandatews that all employerscarry workers’ compensatiom insurance. The amount is based on a percentage ofcompanyt payroll.
As companies go out of business or gothroughu layoffs, fewer claims are filed, he said, and payrolkl declines with less staff, he Businesses may inadvertently cut back in the wrong areads or reduce insurance to the pointr of putting themselves at too high of a “When you look at business and insurance, it’s a problem that is inevitablty expensive,” Kezer said. “Its design is to provide security againstpossible losses.
From a business-risok perspective, the reason to get insurancd is to protect from things that devastate a Reducing coverage could mean a high liability for very littls savings at a time when manycompaniesx can’t afford such a largw risk, according to Chelley Schaper, senior vice president and clientr service executive for , in Denver. Schaper focuseas on risk management forlarge clients. In the last Schaper has seen companiesz takelarger retentions, or deductibles, or lowerd their limits. “It’s something that we talk about with our clientssevery day,” she said. “There’d an overall trend of expense reduction amongall clients.
” Schaper works with clients to determined the company’s long-term goals and current financiakl state. “If they want smooth earnings, they buy a lowerf retention; it is more on a guaranteed cost,” she “Clients who feel as thoug h they have a handle on claimws and loss prevention woulfd use a large deductible that will allos formore cash-flow Kohler, who works mostly with small-to-midsized said clients are asking if parts of theit insurance are really necessaryu and how to reduce coverage. Kohler said he works closelyh with clients to determineappropriates coverage, depending on their size, financial statuzs and risk tolerance.
Kohler said he recentlyu helped a client save a significant amount on their auto fleet insuranc by raisingthe deductible, which had been $100. Afted learning the client wouldn’t file a claim under $1,000, he encouragesd the client to raise the deductible to that amount to save onpremium