Take control of rising premiums. Learn from those who’ve done it.
These days, Bob Malerba, owner of Malerba’s Silver City Tire Co., is feeling a lot better about the cost of his business insurance.
Just 18 months ago, Malerba was at his wits end as he helplessly watched his insurance rates skyrocket. Malerba knew he was in insurance trouble because of too many claims, but he didn’t know just how bad it was. His loss mod was a monstrous 1.6, which pushed him into an "assigned risk pool" with exorbitantly high premiums.
The Connecticut tire man wasn’t alone. For the past four years, dealers across the continent have seen their premiums for workers’ compensation, business and employee benefits insurance jump 10%, 25%, even as much as 50%. These seemingly insane premium jumps put small businesses of every type underwater. More than a few dealers got lost in the premium crunch.
Frustrated, and getting little help from Washington, dealers fought back themselves ®“ through their associations ®“ by careful examination of their own businesses and by proactively educating insurance agents and underwriters.
Malerba’s own self-examination and education push, for instance, helped slash his workers’ compensation premiums by $40,000 in 2003 and another $7,000 in 2004.
While his total yearly insurance costs, for every facet of his business, dipped only slightly (from $208,000 to $203,000), his mod rate plummeted to 1.4 in 2003 and now stands at a healthy 1.1.
"Some of our casualty insurance rates are up, but those we learned how to control went down dramatically. We were able to reduce our workers’ compensation and health insurance premiums by explaining how our business works to agents and underwriters," he says. "We are no longer part of an assigned risk pool. We are fully insured, and our rates are going down, not up."
So, how did Malerba do it? How can any dealer rein in insurance costs, or even force them down?
It’s not all that hard, as dealers we spoke with explained. Of the dealers we interviewed, most took nearly identical steps ®“ five easy ways that you, too, can slash your insurance costs.
Stay Close to Agents
For starters, since 2002, Malerba has tried to establish a rapport with his insurance agents and their underwriters.
"The bottom line," he says, "is that it’s our job as tire dealers to educate insurance agents and underwriters, not only about our business loss exposure, but how well we train our people and the nature of our business,"he says.
"After severing our relationship with one insurer, a new underwriter was reluctant to take us on. I spent a lot of time explaining the nature of our business. Finally, I sent the underwriter a TIA training catalog and completed TIA training certificates for my employees," he says. "It’s a powerful tool to have on our side.
"It was precisely what the carrier needed to see from me. They took a chance on us, and it was a good bet."
Create a Formal Program
Barbara Briggs, secretary/treasurer of Briggs & Sons Inc. in Fayetteville, N.C., says she cut her workers’ compensation premiums by $30,000 in 2003 and expects further reductions in 2004. How? By changing a few things in the business and building a partnership with a new insurance provider.
"We had no claims in 2003," she says. "As long as we stay on track, we’ll be able to enjoy further savings this year."
In 2002, Briggs & Sons suffered two horrific shop claims involving company employees. In one instance, an employee was killed and a woman in another car seriously injured. Within the year, another of Briggs’ employees was seriously injured when he hit a cement truck during a test drive.
That sent her "loss experience mod" soaring, and the dealership instantly became a high-risk customer. Nearly overnight, Briggs & Sons went from a low-risk customer courted by insurance carriers to a high-risk customer in danger of losing its insurability.
How did Briggs lower its premiums and become a low-risk customer again? "We sat down with our agent who introduced us to Amerisure insurance. Working with information we provided, as well as committing to changing our work habits, Amerisure asked to become
a partner in our safety program."
Today, all Briggs & Sons new hires have to submit to full background checks and a complete physical and drug screening. Also, the dealership established a driver’s training program and traced out new, safer routes for testing customer vehicles. "We even set guidelines for how fast a customer’s car could be driven,"says Briggs.
"We reduced our rates by properly communicating with our insurance company and our employees," she adds.
With new work rules in place, and thanks to greater employee awareness, Briggs & Sons is back to being a model insurance customer.
However, the North Carolina dealer can’t stop every increase. Briggs expects her health insurance premiums to increase by about 10%.
The increase could have been worse, she says. "That’s partly because rates are leveling off and because I raised my deductible from $500 to $1,000 per employee. I’ve heard that some dealers are asking their employees to split health insurance costs 50/50, but we haven’t had to resort to that at this point."
Invest in Safety Equipment
In Staunton, Va., Burk Hershey, owner of Hershey Tire Co., is frustrated by his insurance situation. "We locked in a rate before 9/11 that was very favorable," he says, "so I can’t complain about rates as much as some of my fellow dealers.
"But now, it’s 2004, and I’m up for renewal. As a retreader, I’ve just learned that I’m not covered to bolt on retreaded truck tires. But, for another $4,400, I can purchase the coverage I need," he says, exasperation in his voice.
"We made improvements in the retread shop by employing monorail equipment that minimized the need for an employee to lift tires. Plus, all my guys are well versed in safety procedures," he says.
"They made themselves less vulnerable to injuries, particularly when mounting and demounting tires. We also take great care in hiring honorable workers."
Thanks to climbing premiums over the past few years, Hershey can no longer offer first-dollar coverage as part of his health care package, but all of his employees are covered. And he’s looking at a meager (by today’s standard) 8% to 10% health care increase in 2004.
"We’re ready now to lock up another three-year health insurance rate," he says, "and expecting our workers’ compensation premiums to level out. At least that’s the expectation."
Hershey points to his new monorail system, a new lift and the purchase of a new tire changer in the near future as keys to making his dealership a safer, low-risk business. "It’s what insurance companies want to see, and it makes sense to do it," he says.
"As I see it, we must all work together ®“ employees, agents and underwriters ®“ to find ways to save money. Twenty-five years ago, we offered a $100 deductible. Now, we’re at much higher levels and scrambling to take care of our employees."
Run a "Clean" Shop
In south central Illinois, Dan Lowery, owner of Stan The Tire Man in Mt. Vernon, says that health insurance premium increases are nothing new. "We’ve experienced 8% to 10% increases every year," he says.
"As far as workers’ compensation claims are concerned, it depends purely on the number of claims filed, and we have leveled off," he says. Part of Lowery’s secret is paying off small claims out of his own pocket. "We’ve always done that here because we feel we must assume some of the responsibility for accidents."
In that regard, Lowery also makes certain his employees are properly trained to do their jobs safely. "All of our truck tire people are certified through ASE, and one of my two sons, who have joined me in the business, is a TIA-certified commercial tire service instructor."
Lowery runs a clean business, literally. He does everything by the book, and he knows how to avoid claims problems on the strength of his 46 years in the tire business.
"To keep premiums in line, I now pay a higher deductible for health insurance. We also constantly work at making sure our dealership and retread shop are safe places in which to work and conduct business. It makes sense to me and my 25 employees," he says.
The Illinois dealer says he has lunch with his insurance agent once every couple of months. "We stay in touch," he says, "and it helps." The meetings, he says, help the insurance agent better understand his business, and they work on new ways to keep premium costs under control.
Does that mean Dale Lowery can’t be blindsided? "Don’t ever say that," he says. "The truth is, I can be blindsided just like anyone else."
Turn to Employee Leasing
"Some employee leasing companies pool dealers in groups and blend the loss mod ratio. In this way, they can often drop a dealer’s loss mod from 120 to 100 and realize an immediate premium reduction," says Jerry McAndrews, senior vice president for Universal Underwriters Group in Overland Park, Kan.
"But if the loss ratio for one dealer climbs substantially, however, it can cause the rates for everyone in the pool to go up," McAndrews warns.
Employee leasing companies do just that ®“ lease employees to companies. They also help with payroll, but there are fees involved to lease workers, and, for a variety of reasons, it may not be the best solution for everyone. Still, many dealers turn to employee leasing as a means of stopping cash flow hemorrhaging from bloated workers’ comp premiums.
Lynn Still, who, along with her husband, Jimmy, operates Still Tire in Memphis, is trying to do everything she can to cut insurance costs. "Two years ago, there was a wreck involving one of our employees that resulted in death," she says. "Our workers’ compensation rates went up so high we turned to employee leasing to reduce our workers’ comp premium costs."
Call it the laws of probability. Call it good claims management. Call it smart business. Any way you cut it, Malerba, Briggs, Lowery, Still, Hershey and others have put themselves in a position to win the premium wars.
All it takes is a few simple steps.
Premium Pain Eases; Stitches Still Required
Finally, there is some good news to report about health and workers’ compensation insurance premiums. After nearly three years of tough times, insurers are optimistic that 2004 will see as many premium dollars coming in as claim dollars going out. That leveling should translate into nearly level premiums for health insurance and workers’ compensation coverage.
That’s great news for tire dealers, especially those who’ve worked hard at reducing their claims. Dealers will still face increases, but not at the same uncontrolled rate of the last three years.
"We are definitely seeing a leveling off in the rate of premium increases for workers’ compensation and health insurance," says Jerry McAndrews, senior vice president for Universal Underwriters Group in Overland Park, Kan.
"Two years ago, we were seeing workers’ compensation rate increases in Florida as high as 60% to 70%. In 2004, we will see rate increases in the 15%-to-20% range. In some cases, for dealers with a low loss ratio, rate hikes may be as low as 8% to 10%. Health insurance rate increases are also expected to be in the 8% to 10% range for 2004," says McAndrews.
One reason for the rate slowdown is a decrease in insurers’ "combined ratios," the ratio of losses and expenses to premiums. In 2004, it is projected that combined ratios will stand at 100.7, down from an estimated 101.7 last year and well below the 115.7 seen in 2001.
While combined ratio numbers show improvement, the insurance industry will still be paying out roughly $1.01 or $1.02 for every $1 in premiums it takes in. The insurance industry’s optimism is tied to the recent performance of the stock market and to the Fed’s indication that interest rates will be held in check for 2004.
Nothing is cast in concrete, however. Any major catastrophic event, a sharp downturn on Wall Street or a shift by the Fed could have a negative effect. Dealers still need to work at improving their insurance position.
It’s the Little Things
From his side of the street, McAndrews is working just as hard at reducing insurance costs for his clients. Not surprisingly, some of the best ways to cut premiums are pretty simple.
"Tire dealers need to be very aware of employee driving records," he says. "Because good help is hard to find, it’s tempting to let a DUI or a handful of speeding tickets slide by. Fact is, that’s a bad idea." Mc-
Andrews says dealers should examine employee driving records every six months.
"We also advise dealers to look for and eliminate what we call ‘slip and slide’ areas," he says. "Employee and customer falls are far too common." A bit of common sense can eliminate this problem.
"Just as eye injuries can be avoided by wearing safety goggles, back problem claims can be reduced by wearing belts designed to protect the human body when lifting. And the use of a monorail system in a retread shop also minimizes aching backs."
McAndrews also likes to see his customers set up safety committees in their businesses. "When management names one or two people to serve as heads of a safety committee, we see a business that’s taking charge of its loss ratio. It’s a proven way to lower premiums and reduce claims."
Another way to cut costs, suggests McAndrews, is to use "binding arbitration" as a way to settle product- or service-related claims.
"In the event of a dispute between a tire dealer and an employee or customer, binding arbitration allows the two sides to sit down and settle the matter out of court. It’s legal, it follows the law and it avoids costly lawsuits," he says. And costly lawsuit judgments mean insurance increases.
It Doesn’t Take Much
Sometimes even the most careful dealer will suffer some bad luck. And the resulting insurance bounce can hurt in more ways than one.
Jim Miller, owner of Twin City Tire in Minneapolis, Minn., hadn’t experienced a workers’ compensation claim of any consequence for five years. Then, one of his employees recently came up with not one, but two, serious rotator cuff injuries.
"The early estimates on repairing those shoulders were roughly $50,000 each," says Miller. "While we certainly want to take care of our employee, and will, we were expecting to see our workers’ compensation premiums take a substantial drop in 2004. Now we’ll have to wait and see. We could be looking at an increase running in the thousands of dollars."
While Miller is expecting a modest 8% to 10% hike in health insurance rates for 2004, Jimmy and Lynn Still, owners of Still Tire in Memphis, aren’t so lucky. They are trying to do everything they can for their 23 employees, some of whom have been with them for 20 years.
Spiraling health insurance costs have forced the Stills to pass some of the cost back to the employees and raise deductibles from $250 to $1,000. While the Stills continue to pay 100% of employee health insurance premiums, employees have to pay the difference for family coverage. "It’s come to that," says Lynn.
Lynn Still is upset about what she calls the price of loyalty. "To me, it isn’t right that these people, who have given us the best years of their lives, have to bear this burden. We respect what they’ve done for us and are trying to help."
Hershey Tire in Staunton, Va., had an almost unblemished claims record for 25 years. "Then, in the early 1990s, we had two bad claims years out of three," owner Burk Hershey says. "As other dealers know, it takes a while to get rid of high-risk insurance."
The state put Hershey into an assigned risk program, but his hard work at lowering claims eventually allowed the dealer to get out of the high-risk pool.
On the Campaign Trail
It’s a presidential election year, a time for vague promises of a better tomorrow. And at least one candidate, Democrat Joe Lieberman, who dropped out of the race Feb. 3, vowed he would limit insurance company profits to a 2% increase a year in order to reduce the cost of health care.
The ex-presidential candidate says health insurance is the number-one complaint he hears from voters. "On average, they have experienced a 14% annual increase in premiums, while their income has gone up only 3%," he says.
Lieberman’s plan called for low-cost private health insurance pools for small businesses of 50 employees or fewer. Insurers would be free to negotiate directly with drug companies to help force drug prices down.
Does the idea have merit? Campaigning in New Hampshire, Lieberman met with tire dealer Greg Bryar, owner of Belmot Tire in Laconia. Bryar, according to a report in the Manchester Union Leader, pays 100% of his employees’ insurance premiums, shouldering a 27% premium increase in the last two years.
"As far as the government is concerned, something has to be done," says Bryar. "Being in a pool is definitely going to help."
Lieberman’s opposition had plenty to say on the subject, little of it having to do with reducing insurance costs. Some resorted to calling his plan "nationalized health care," because they know what sounds easy on the campaign trail won’t be easy on Capitol Hill.
What’s an AHP?
The Small Business Health Fairness Act of 2003 would allow small businesses to join together through associations to purchase quality health care insurance at lower costs. This would be accomplished under an Association Health Plan or AHP, a pro-business measure many groups have been pushing over the last three years.
Although the House version of the AHP Bill pushed its way through (H.R. 660 passed by a wide margin in June 2003), the companion Senate bill (S. 545) remains stuck in Sen. Judd Gregg’s (R-NH) Health, Education, Labor and Pensions Committee.
Gregg’s committee’s reluctance to move the bill forward comes despite the fact that dozens of trade groups ®“ including the Tire Industry Association ®“ have been ardent supporters, looking for ways to reduce financial burdens on their members.
If the AHP Bill becomes law, associations would be allowed to offer federally regulated health plans to members across state lines. AHPs would give state, regional or national tire dealer associations the same purchasing power that big business and labor currently enjoy.
The Congressional Budget Office estimates that small businesses obtaining insurance through AHPs could see premium reductions of 13% on average, and as high as 25% annually. TIA says that works out to an annual savings of about $450 to $1,250 per covered employee.
President Bush addressed AHPs in his State of the Union address last month, calling on Congress to approve their creation. Secretary of Labor Elaine Chao also supports AHP legislation.
Detractors say AHPs may not include some more expensive coverage, forcing sicker or older workers to look elsewhere for coverage.
Those in favor of AHPs say competition among associations would eliminate any such possibility. A spokesperson for the National Federation of Independent Business said AHPs would have to comply with federal coverage mandates under ERISA, the law that governs employee health benefits.
Right now, the bill is stuck in the Senate committee, where some believe it will languish. Others remain hopeful that the AHP Bill will become law in 2004.
If you believe AHPs are a good idea, write your Senators. Also, for more information, go to www.AHPsNow.com.