Changing insurance carriers isn’t a decision most CFOs can breeze through. In a market that continues to soften, many companies can save money by switching insurers, but in doing so they can also ensnarl their borrowing resources and tie up their risk managers.
A company that buys a policy including hefty amounts of self-funding, for instance, might face demands from the new insurer for more collateral to cover the buyer’s part of the risk; the newly required letter of credit could consume a bigger chunk of the company’s credit line. Making a change could also consume hundreds of staff hours as the risk management department assembles internal data for presentations to carriers. It’s no surprise, then, that “CFOs are not moving accounts to save 1 percent,” according to Timothy Brady, a managing director with the U.S. casualty practice of Marsh Inc., the biggest of the insurance brokers.
Yet they are moving, in substantially greater numbers. In a recent survey of about 2,000 businesses and government entities, Marsh found that nearly one in four switched their workers’ compensation, general liability, or commercial auto liability insurer last year — far more than the one in seven that changed insurers in 2003.
Arguably, price competition has a lot to do with it. Many companies that renewed their casualty programs on July 1 enjoyed a “notable downward tick” in pricing, often to the tune of 5 percent to 10 percent, according to Brady.
Indeed, prices in the property/casualty market overall have been dipping. During the second quarter, premiums for the average commercial p/c account dropped by 9.7 percent, according to a survey sponsored by the Council of Insurance Agents & Brokers of 131 commercial insurance brokers. By size of account, the price cuts were across the board: an average 5.6 decrease for what the brokers considered their small accounts, 11.4 percent for mid-sized clients, and 12 percent for the large employers.
Companies didn’t necessarily have to shift insurers to trim their premiums (although the threat that many companies might be making a move undoubtedly lowered prices); very likely, many corporate insurance buyers received lower rates from their incumbent providers. Other companies are pursuing a mixed strategy: soldiering on with some carriers but switching away from others.
The latter approach saved Shaklee Corp. — a Pleasanton, California provider of nutritional supplements and a subsidiary of Japanese-based Shaklee Global Group — 10 percent at its May 27 insurance renewal, according to Karen Beier, vice president of risk management for Shaklee Corp. The company dropped its Bermuda-based umbrella-liability carriers for Asian and European insurers, enabling it to parlay Shaklee Global’s relationships with Japanese insurance companies, according to Beier. Shaklee Corp. also got better-than-market rates from its longtime primary product-liability carrier, Chubb Insurance Group. In a series of face-to-face meetings with underwriters, Beier strove to distinguish the company’s risks from those faced by other makers of nutritional supplements. Product liability is the company’s toughest peril to insure, noted the risk manager, in part because of the negative publicity surrounding products such as those including ephedra, which her company doesn’t distribute.