Manufacturer using our Contractual RM© reduces insurance premiums by $600,000
Insurance premiums are based on risk. Underwriters for commercial liability policies develop their premium rates based on the company’s risk: the probability of the company experiencing a loss in the future. Previous losses are important, but only if they show a trend for future losses. This is why smokers’ premiums are higher, not because they have cancer, but because they are more likely to get it.
For manufacturers, the premiums are usually driven by product exposures. Underwriters know that most liability claims for manufacturers come from people injured using their products. The problem is when losses are not product related but the result of the company not knowing how to manage the risk of using outside service providers.
In 1996, when our client opened for businesses, it paid about $100,000 for General Liability ($1M limit/$0 deductible) and umbrella ($15M limit/$0 deductible) combined. Ten (10) years later, it was paying about $800,000 for the same coverage. During this period, the company did not have any product liability claims and their revenues more than doubled. Instead, the company had experienced multiple vicariously/contingent liability claims involving uninsured and underinsured contractors.
What happened? One of our client’s best competitive advantages has always been its commitment to constantly reduce its operating cost by keeping the highest standards of quality and safety. Therefore, through the years, our client subcontracted and outsourced most of its non-core operating activities, and hired hundreds of contractors to work on expansion projects. Although it was getting the lowest cost, unknowingly, it was picking up most of the risk that was supposed to be transferred to the vendor doing the work.
After using our Contractual RM©, and implementing a new contractual risk management program developed by INSIGHT, the company was able to reduce its liability premiums by $600,000.
The chart below shows our client’s liability premiums (General Liability + Umbrella) from 1996 to 2013. As you can see, during this period, premiums have not been driven by revenues from product sales or policy limits (umbrella limit was $25M in 2013) but by INSIGHT’s products and services.