Risk management
To cut insurance costs, first beef up safety programs
by Andrew Tellijohn Just after Sept. 11, 2001, the stock market had gone south, which led insurance companies to charge more for coverage.
Furthermore, the number of claims and their monetary cost had skyrocketed at Driessen Culligan. The company’s rates had doubled, and the water purification franchisee in Northfield had become almost uninsurable.
After speaking with an insurance salesman, Dan Driessen, CEO, entered an unusual partnership with RJF Agencies Inc., an independent insurance broker that also works with companies to install safety measures, action plans and other strategies to reduce the risk and likelihood of future claims.
Driessen treated an RJF representative as an employee, having him sit on company safety committees and allowing him carte blanche feedback on what he observed.
Six years later, Driessen Culligan conducts monthly “toolbox talks” on a multitude of topics ranging from proper lifting techniques to safely backing up vehicles. A detailed analysis of the claims previously filed has created strategies that reduced leaks caused during installations. The resulting drop in claims — and subsequent improvement in insurance rates — have improved the company’s bottom line by six figures annually.
“Our company used to be a loss waiting to happen,” Driessen says. “Now our losses have been drastically reduced through the partnership with RJF.”
Savings achievable
While the impact RJF had on Driessen Culligan is dramatic, nearly any company could save money on insurance costs by putting safety control measures in place, experts say. Bill Jeatran, CEO, founded RJF on those principles in 1986 and now has a separate, 13-person department headed up by Alan Wissbroecker and dedicated solely to risk management.
“The more risk management and safety controls you have the fewer claims you are going to have,” Jeatran says. “The goal was … how do we create a value proposition in what can be seen as a commodity industry.”
Wissbroecker and Jeatran list example after example where clients saved money, not by shopping their insurance every year, but by instituting policies and procedures aimed at reducing claims.
At one, a local manufacturing firm, claims had traditionally been higher than premiums; insurance companies expect to be at 50 percent to 60 percent at the highest. After three years of working with RJF, work comp claims alone dropped from $237,000 to $31,000.
At another company, RJF did wellness pre-screening and found 16 employees with pre-diabetic symptoms who could avert the disease with diet and lifestyle changes. Had those risk factors gone undetected and the workers ended up getting sick, they say, it could have cost the firm upwards of $1.6 million worth of claims.
“Our point on it is certainly we know there is a changing marketplace and rates go up and rates go down,” Jeatran says. “But at the end of the day if you don’t eliminate the risk or reduce the claims you are going to pay more.”
At a company like Culligan, Wissbroecker adds, by not having between $50,000 and $100,000 in insurance claims stemming from leaks every year, the company can pay less for insurance by paying higher deductibles and it is better for business because you create fewer unhappy customers.
“The more you drive your losses down the more you can drive your insurance prices down,” he says.
Safety programs
Insurance firms that provide risk avoidance strategies are becoming more common. Construction can be a risky business and independent agents from Cobb Strecker Dunphy & Zimmerman will frequently visit sites to ensure the companies they work with have good safety programs for fleet safety, defensive driving and several other issues in place.
“A good business should have a good safety program in place,” says Rob Dahlin, account executive for the agency. “We love to go to a company that has a rock solid policy in place. We know we can get a better deal then.”
But having good risk management strategies in place isn’t the only way small businesses can ensure they get the best possible deal on their insurance. Companies should look for insurance firms that specialize in their area of business. For example, Minneapolis-based Cobb Strecker works solely with construction firms in the upper Midwest.
To find firms with an expertise in your area, some suggested trade publications. Dahlin recommended contacting industry groups such as the Associated General Contractors or the Associated Builders and Contractors. “If they’re worth their salt, they’re probably a member of one of the local associations,” he says.
When you’re comparing insurance policies, companies should also try to make sure the carrier they choose has underwriters and claims agents based locally so when you do need a claim, they can handle them on the same day. “The last thing you want is some guy out of California adjusting a local claim,” Dahlin says.
Relationships count
While shopping your insurance every once in a while isn’t necessarily a bad strategy, Dahlin and others caution against doing it every year, as many companies do. Those that do it annually end up paying more in the long run because many carriers don’t want to work with companies who exhibit that pattern.
Marc Macke, owner of Agency 10 Insurance in Plymouth, suggests finding an agent you are comfortable with, having that person shop your insurance for you, and making the person a part of your regular stable of advisers.
“You need a good accountant, you need a good lawyer and you need a good insurance provider,” he says. “Insurance is going to come up every year. And it’s going to come up almost every day if there is a problem.”
North St. Paul-based Dew Corp. opened its doors in 2001, and since day one owner Robert Dew has worked with Cobb Strecker. When he went searching for insurance, he was intrigued to find that the company was one of a half-dozen or so agencies that works solely with construction companies.
“I have a great relationship with my broker,” he says. “We’re beyond the point where I feel he is just trying to squeeze more premiums out of me for coverage I don’t need. I can ask the hard questions of them. What is the probability that I will experience a loss of this type? What do the statistics say?”
While finding a good insurance company is important, business owners also have a modicum of responsibilities to look out for themselves, Dew adds. Owners should know what they must cover from a regulatory perspective, and then know about what industry-specific coverages might be worthwhile. One example in construction right now is mold. It’s not a required coverage, “but if you don’t have it, you are probably exposed at a level you don’t want to be,” he says.
Then they need to know the questions to ask to find insurance sellers armed with the latest statistics available for their particular industry.
“You can’t do that with your own experience,” he says. “You’ve got to get someone who can get you to the industry stats.”
Steve Solbrack, president of Golden Valley-based Solbrekk Inc., has operated three businesses since 1985, a long distance company, an Internet and data firm, and now an information technology network solutions provider. Through all three, however, his independent insurance agent hasn’t changed.
“I rely on them to shop it for us every couple years,” he says. “They pay close attention.”
He met his agent at a networking event back when he was starting his first business. The duo have grown together and now Solbrack trusts the agency to keep up with and inform him about any optional coverage he might need.
It’s not brain surgery, he adds. At first they just clicked.
“In 1985, I would have had no clue,” he says. “It’s nothing special. It’s more just the basic networking you need to do in business anyway, either with businesses you need or you network with other business people and get a sense for who they use and who they trust.”
Common errors
While Bill Kozlak Jr. hasn’t been with the same agency quite as long as Solbrack, he agrees that creating a relationship with your insurance agent is key. Insurance is vital in the restaurant industry, he says, because of dram shop liability that holds owners liable for patron deaths and injuries, and DWI laws.
Kozlak, third-generation owner of Jax Café in Northeast Minneapolis, recently opened a second restaurant, Edina-based Kozy’s Steaks & Seafood. One of his first moves was contacting the agent he has worked with the last six years to make sure his coverages were in order.
“First, you have to know the parameters and laws of your business,” he says. Then “you have to have a good relationship with whoever you are going to be insured by.”
In addition to coverages related to accident liability, Kozlak says he’s conscious about the risks of property damage, theft and any number of subjects. But he’s not about to allow someone with no knowledge of the industry to insure his restaurants. Why risk the possibility, for example, that an agent might try to insure against a level of theft higher than the amount of money that will ever be in the till, he asked?
“If you get some rookie that doesn’t understand the ins and outs of a restaurant, they might not be able to get you covered correctly,” he says.
“Insurance to value,” that is to say making the amounts you cover your business for match the relative worth, is a big problem today, Agency 10’s Macke says.
For example, if a company leases a space and then does $10,000 worth of improvements, those fix-ups need to be added to the business-personal policy even though the building is owned by someone else.
Also, when protecting an item, make sure it is insured for its replacement cost and not its “fire-sale cost,” Macke says.
“If a guy needs $100,000 worth of business personal property insurance but decides to only carry $50,000 … essentially they would only pay half the claim,” he says. “They could be underinsured even on a partial loss.”
Also, be honest with your insurance agent and carrier, and divulge all the information necessary to cover your needs effectively. “It’s not all the agent,” Macke says. “The business owner does have some responsibility.”
[contact] Rob Dahlin, Cobb Strecker Dunphy & Zimmerman: 612.349.2420; rdahlin@csdz.com; www.csdz.com. Robert Dew, Dew Corp.: 651.777.4900; rdew@dewcorporation.com; www.dewcorporation.com. Dan Driessen, Driessen Culligan: dan@ultrapure.com. Bill Jeatran, Alan Wissbroecker, RJF Agencies Inc.: 763.746.8000; mulfingerj@rjfagencies.com; www.rjfagencies.com. Bill Kozlak Jr., Jax Café: www.jaxcafe.com. Marc Macke, Agency 10 Insurance: 763.551.1010; mmacke@agency10.com; www.agency10.com. Steve Solbrack, Solbrekk Inc.: 763.475.9111; www.solbrekk.com
