Real Estate Firm Self Insures and Saves $1.5 Million
Bill Goddard, Principal, Insurance Advisory Services, recently discussed the rising cost of workers' compensation insurance in the St. Louis Business Journal. Learn how Goddard helped a multimillion-dollar commercial real estate firm save $1.5 million on their workers' comp insurance.
Workers’ compensation insurance is currently difficult to buy because insurance companies are experiencing high loss ratios and low investment returns.
A multimillion-dollar commercial real estate firm noticed that after three years of progressive growth in its business, its workers’ compensation insurance premiums had escalated from $800,000 to $1.5 million to $2 million annually.
When the real estate firm’s premiums reached the $2 million mark, executives at the firm examined loss reports with an insurance consultant at Brown Smith Wallace. With losses of about $400,000 a year, executives at the real estate firm had tried to negotiate a lower premium, but the insurance company would not budge. They went to other insurance companies and their premiums were similar — around $2 million annually. The renewal premium was going to be $2.5 million for the following year.
Consider all alternatives
After consulting with Brown Smith Wallace, the real estate firm changed course and started looking for a large deductible program. With a large deductible plan, the real estate firm would pay the first $250,000 of every loss instead of an insurance company being responsible for all losses. Based on the $400,000 reported loss from the previous year, a large deductible made a lot of sense for the company. The firm saved $1.5 million since they now pay $1 million ($500,000 in insurance and administration cost and $500,000 in losses) rather than $2.5 million in premiums.
Lesson to learn
You don’t have to be a multimillion-dollar firm to realize significant savings. If a company is paying more than $500,000 for workers’ comp insurance, its executives should be examining their alternatives. Even companies that pay less than $500,000 should realize that the insurance market is very competitive — just because Insurance Company A says you should go up 5 percent, doesn’t mean Insurance Company B wouldn’t go up just 2 percent, for example. That’s true for insurance in general. Some companies never reach the point of recognizing there is an issue because they are satisfied with a slight increase when they really shouldn’t be satisfied with their situation at all.