Insurance insights in an uncertain world
From COVID-19 concerns to unrelenting severe weather events, the insurance industry is going through many changes causing dealers to find themselves with higher insurance premiums, more stringent underwriting criteria, and reduced capacity. These issues create more reasons for the LBM industry to understand the potential liability issues that threaten their business operations and to stay vigilant in protecting their livelihoods, insurance experts say.
“The days when [LBM leaders] said, ‘I’m not too concerned with risk management, that’s why I have an insurance policy,’ are over,” said John Smith, president and CEO of Pennsylvania Lumberman’s Mutual (PLM) Insurance Company.
Smith and members of his executive team addressed industry leaders at HBSDealer’s “State of the Insurance Industry” webinar. The hourlong presentation delved into complexities of the insurance business and how LBM executives can take measures to safeguard their businesses. Some takeaways follow below.
The Benefits of Risk Management
Active risk management efforts are important for a number of reasons, PLM executives said.They help:
-Avoid or reduce the potential for a loss to occur.
-Minimize damage and injury in the event of a loss.
-Defend your business—in the event of a catastrophic loss that goes to litigation.
However, as the executives pointed out, having the best-defined safety policy is no good unless company management and personnel adhere to it. Smith provided a cautionary tale of what can happen if safety practices aren’t followed. What he called a “first-class operator,” a company committed to loss control allowed a young man to get behind the wheel of a truck even though they knew he didn’t have a valid license. “He got in the truck and killed somebody. They knowingly did that. How are we going to defend that case?”
His advice to business owners: Be personally involved in risk management. He recalled a site visit with an owner who knew her building. Before they left her office, she grabbed a pair of wire cutters. As she came upon an extension cord lying across the floor, she took out the cutters and cut the cord. “She knew extension cords are responsible for more fires than you could imagine,” Smith said. “Little things like that can prevent a claim that you may not be able to afford later.”
Smith suggested businesses shouldn’t expect to be penalized if a business owner had all safety measures in place and their building still burned to the ground. “They will be penalized, however, if they neglect electrical maintenance or fail to replace a 15-year-old microwave oven in the kitchen.”
Threats and cybersecurity
According to John Kennealy, VP of claims, cyber risk has quadrupled in the last 9-10 months during the age of COVID; therefore, he said it is incumbent upon LBM dealers to provide ongoing education to their employees. “Because of COVID many people are working from home and that opens up threats,” he said. “You can have the strongest firewall, but the weak links are people who think they are getting an email or link from their boss at home and click on it and bring on malware, and now the company is being held hostage (by ransomware).”
Twice a year PLM employees go through cyber training where they invite family members to participate. The reason? Say an employee brings home a company laptop and his teenager unsuspectingly clicks on an area he shouldn’t. Suddenly, the company could be at risk. Kennealy advises business owners to talk to their insurance brokers regarding cyber coverage. “At the end of the day it is about education and being vigilant.” Businesses have free access to cybersecurity services including eRiskHub, a risk management portal designed to help prepare and respond to data breach and cyberattacks.
Climate impact
Wildfires in California. Hurricanes in the Gulf. Tornadoes and straight-line winds in the Midwest. And now snow, ice storms and power outages in Texas. Climate change is fueling wildfire and windstorm exposures, in turn driving up costs and liability.
“In more than 40 years in the industry I could probably count on one hand the number of claims on the liability side of over $5 million,” Smith said. “In the last two to three years, there have been six or seven claims of over $5 million, which is unprecedented in the industry. When you have that type of loss it is hard to recover.”
While Mother Nature is hard to predict, there are steps LBM dealers can take to minimize or perhaps mitigate the damage. For example, if your business is located in a wind-prone area, susceptible to wildfires, trim or remove your shrubs and other fire hazards. If you’re located in a flood zone, examine where you place your forklifts and commercial vehicles. “It’s a matter of walking through your operation and seeing where you might have a weakness.” Kennealy said.
Securing favorable renewals
Insurance costs are rising but PLM experts say adhering to loss control measures can result in fewer, less costly claims that can keep premiums down. Panel experts advised keeping in close contact with your broker and insisting that the broker have a strong knowledge of your business. “I’ve heard stories where a business hasn’t heard from their broker in a year,” Smith said. “I know of companies who wanted to hire a consultant to look into their insurance needs when the real problem was that the broker was not doing his job. If you’re spending money on a consultant what you need to do is fire your broker.”
Smith suggested shopping your program once every three years with other insurance carriers/brokers.
Other takeways ....
-PLM executives encouraged dealers to report all claims, no matter how insignificant they might be, and to do so immediately (same day) that you become aware of the claim;
-Allow staff to only do those jobs that they are trained for and have the skill to do;
-Social inflation is driving up costs; younger juries are handing out bigger awards—in some cases, mid-seven-figure awards;
- Work in partnership with insurance, said Steve Firko, SVP business development. “Can we avoid some of the catastrophic losses that could raise their premiums [by working together]? Yes, we can.”