Accident Control

By Business Observer Staff
| 6:00 p.m. May 2, 2008
| 2 Free Articles Remaining!

Entrepreneurs

Accident Control

INSURANCE by Dave Szymanski | Tampa Bay Editor

Insurance brokers agree: The best way to control costs is to control accidents and offer employees choices, especially when it comes to health insurance.

Five years. That's how far back insurance companies look when reviewing a company's accident and loss history when preparing a quote for coverage.

So there's a simple lesson for chief executives there: Control accidents and you control some commercial insurance costs.

Yet, many companies continue to do business the old way: Get a few brokers. Get a lot of quotes. Pick the lowest price.

There is a better way, brokers say.

"Traditionally, companies get multiple brokers and bid quotes," says Rick Lennerth, senior vice president with M.E. Wilson Co. in Tampa. "The problem with that is that it leaves you at the mercy of the market."

Companies instead should control the causes of higher insurance costs, Lennerth says.

"I think the most important thing, the only way to long term manage costs, is to manage the underlying risks," he says. "It's not strictly looking at insurance premiums."

Now, because of the softer economy, insurance pricing is down, workers compensation and all casualty lines, general liability, commercial auto and umbrella policies.

But companies need to study prices. For example, workers' comp rates in the state are down 51%, but expected loss ratios are lower as well.

With auto and general liability, as companies haven't been writing insurance, some carriers have left the state. So this shortfall in premiums has meant more competition for casualty lines.

Still, companies need not look solely at rates, but look at underlying risks, Lennerth says.

A risk management program for a company includes identifying risks, analyzing them, developing a plan to control risks, finance, administration, implementing the plans and monitoring the progress.

"That's a proactive approach to risk management," Lennerth says. "Bidding and quoting is just reactive. Insurance is just one tool in risk management."

Broker quality is key

And the kind of insurance and risk management can vary greatly for each company. Construction companies are different than retailers. Construction firms work with heavy equipment. With retailers, the public is there. There are risks associated with food. If you manufacture a hazardous product, you need certain coverage.

"You need a broker that knows the markets and has relationships with carriers," Lennerth says. "The relationship the broker has with carriers is as important as the relationship between the broker and the client."

The broker-carrier relationship allows companies to get the service from the carrier, Lennerth says.

Are companies being more proactive in controlling commercial insurance costs?

"I think it's still emerging," Lennerth says. "Not many people are executing it well."

What should companies look for in a broker? In-house claims administration, in-house safety and loss control and someone with resources to build a risk-management program, brokers say.

The ultimate driver of commercial insurance costs is a company's loss history. Controlling commercial insurance costs is about managing losses. Not all risks can be avoided. But proactive management of it helps.

So if a company has a warehouse that constantly has accidents, and the company is doing nothing to lower them, the CEO of that company "will be a lonely person" waiting for an insurance quote, Lennerth says.

"They don't have any control over the insurance marketplace," he says. "But this is an action they can take. A lot of risks, they do have control over."

One tip Lennerth offers: Tell insurance companies your positive safety story: What you've done and how employees have responded.

"You have to be able to tell a positive story," he says. "The carriers are looking at five years of loss history: Injuries to workers, large auto accidents, general liability."

Health care and consumerism

On the health insurance side, consumers are driving many changes, including health savings accounts and health reimbursement accounts. HRAs are similar to health savings accounts, but use employer dollars. They represent significant premium savings.

"This is the year of the HRA," says Jim Rogan, senior vice president and corporate benefits division manager with Tampa-based M.E. Wilson.

The plan itself is more deductibles and co-insurance. The employer commits to paying. If you have testing done, the bill is $900. You get the health care plans discounted. You pay the first $500. Employer picks up the next $500.

"Employers like it when they look at it," Rogan says. "They understand how the plan works. They are very creative and very attractive from a financial standpoint as well."

Companies need to listen and pay attention to the signals in the marketplace. Those that do pay attention are much better positioned, he says.

Sometimes employers adjust their insurance and raise co-pays, Rogan says.

"It ignores the underlining issue," he says.

Employees paying $700 a month to insure a family do not always understand the increases.

"That's where an advocate comes in," Rogan says. "Someday you'll be faced with a steep increase, so you need to give the information now. You and employees are well-prepared."

Non-traditional solutions

How does a company get there? Having conversations with employees about controlling health care costs and insurance is a good start, Rogan says.

"As long as you communicate with employees, plans can be well thought out, accepted by employees," Rogan adds. "You can't be afraid. You have to do it proactively, not reactively."

A lot of employers go straight to increasing premiums and that's not fair, Rogan says. "We always caution against severe changes. That's where a lot of employers are going. More times, they are not getting creative in their plans. You can keep paying, but a plan that includes multiple options is better."

Non-traditional and technological solutions are emerging that will change healthcare for the better and help companies keep costs down, says Rob Pariseau, CEO of Benefits Solutions Group in Tampa.Big retailers are offering $4 generic drugs and free antibiotics. There are now Minute Clinics in pharmacies and discount stores. Doctors are using email to help patients, Pariseau notes.

Maybe most importantly, Google and Microsoft are entering the electronic personal health record maintenance business. Now a person's entire personal health record can reside in one place, be portable and under the patient's control, rather than in paper files scattered among all the medical providers they've interacted with over the years.

"It's a game changer," Pariseau says.

Another new trend is patient advocacy. Companies like Delphi and Health Advocate can help people find specialists and get the best care. Many times, it saves employers and employees money, Pariseau says.

Employees need to be proactive as well as their employers.

For example, Pariseau suggests they take all their medications, put them in a brown bag and tell their doctor to look at them. He calls it "prescription in a bag."

"The doctor will find problems," Pariseau says.

What is really developing, Pariseau says, is a trip back to the future. Before the days of co-payments, people paid deductibles for health care. That is gaining momentum.

"There's a whole generation of people who think a doctor's visit is $20," Pariseau says. "If they knew the cost, they would be more careful and shop around."

Since 2000, employers are trying to get back to deductibles, or cost sharing. It is part of consumer-driven health care.

And tied into that is finances. Companies and employees know there is a connection between good health and healthy finances.

"In the long run, if you don't stay healthy, you're giving your 401k to the health care system," Pariseau says. "Health and wealth are related. The quality of your financial life, depends on the quality of your health."

Its customers are seeing their business shrink.

The customers don't cut back on insurance coverage. But in a softer economy, their exposure units go down. So if a homebuilder builds $100 million in homes, and this year builds $20 million, its premiums fall. That means less revenue for Brown & Brown.

So the key for Brown & Brown in a tighter economy is diversification and selling.

"We write some residential contractors, but as an organization, it's a very small part of the business," Brown says.

Brown also goes back to stressing the importance of recruiting and keeping good staff.

"Our business is a very competitive business," Brown says. "It's all about good people, like other successful organizations. Having good people at all the positions. What we try to do is provide the most comprehensive coverage for the most competitive price. We're very focused on growing our business."

AT A GLANCE

Brown & Brown Insurance

Headquarters: Tampa and Daytona Beach

CEO: Hyatt Brown

FY 2007 Revenues: $959 million

Stock symbol: BRO (NYSE)

Recent stock price: $19.10

52-week stock-price range: $16.66 to $29.15

Price-earnings ratio (trailing 12 months): 22.6 (end of 2006), 13.3 (end of 2007)

Dividend: pays 7 cents a quarter, paid 25 cents in 2007

Market capitalization: $2.7 billion.

Source: Edgar Online