How EHS Risk Management Can Help Lower Insurance Costs
Business insurance is essential no matter your size or industry. Having it helps pay for damages or legal liabilities in the event of an unexpected event like a fire, theft, or vehicle accident. Without insurance, companies would be forced to pay these expenses out-of-pocket.
While insurance premiums are a necessary cost of doing business, the actual amount you’ll pay for coverage can vary widely from one company to the next. To understand why, let’s back up a step.
How do insurance companies determine your rates?
In simple terms, an insurance policy is a way of sharing risk. By providing you with coverage, the insurance company assumes some of the risk if your company suffers a loss. The insurer agrees to pay the cost of claims in exchange for your premium payment.
One way insurance companies earn a profit is by charging more in premiums than they pay out in claims. When you apply for insurance, an underwriter assesses the risk of insuring your business to determine if it is profitable for the company to provide you with coverage. Underwriters employ sophisticated software and formulas to calculate the likelihood you’ll make a claim and determine how much to charge you. The higher the chances you’ll file a claim, the higher your premium will be.
For example, a driver who has had several accidents will pay more for auto insurance than someone with a clean driving record. Similarly, companies that are perceived as a higher risk to insure will pay higher premiums. A business that manufactures chemicals, for example, should expect to pay more for insurance than a retail store.
How risk management can reduce insurance costs
Some of the factors that impact your premiums are beyond your control — such as your industry, location, and number of employees. However, there are steps you can take to lower your insurance premiums. Below, we’ll look at some of the ways that implementing a risk management strategy can have a direct impact on your insurance costs.
1. Minimize the risk of work-related injuries
Work-related injuries, illnesses, and deaths are costly for everyone. For workers, an injury can affect their ability to earn income and result in medical costs beyond what is covered by insurance. For employers, injuries and illnesses can result in medical expenses, legal fees, lost time, and employee turnover.
For this reason, most businesses are required to carry workers’ compensation insurance. Workers compensation insurance covers certain expenses for employees who are injured or become ill on the job.
Many factors impact workers’ compensation premiums, including your industry, payroll, and loss history. A company with a higher loss history will pay higher premiums than a similar company with fewer injuries or illnesses.
Though you can’t go back, you can prevent accidents from happening in the future. Safety risk management can help you identify potential hazards to workers and control or eliminate them before they cause harm to workers. Over time, this can have a significant impact on your accident rates and your insurance costs.
2. Prevent property damage
Commercial property insurance is similar to your homeowner’s insurance policy in that it covers your physical property such as buildings and furniture. However, commercial policies cover more including your tools, equipment, and inventory. In the event of a fire that destroys your warehouse, for example, commercial property insurance would pay to rebuild it. Or, if a lightning strike fries your computers, your insurance would pay to replace them.
Commercial property insurance also covers you in the event of a natural disaster. For example, if a hurricane damages your factory and interrupts your operations, insurance can help you to recover.
Your business has little control over natural disasters and weather. However, you can reduce your premiums by taking steps to identify and mitigate preventable risks to your facilities. For example, upgrading old electrical wiring or installing anti-theft systems are two common controls that can help lower your risk and your premiums.
3. Reduce legal liability
Liability insurance protects your business in the event of a lawsuit or third-party claim. Common claims can include bodily injury or property damage as a result of your operations. For example, if a customer slips and falls in your parking lot. Or, if your business causes a fire.
Businesses can also be held liable for environmental damage and pollution, such as an oil spill or accidental release of chemicals. It’s not uncommon for business to incur significant legal expenses or statutory clean-up fees as a result of these incidents.
Again, risk management strategies can help to identify areas of liability. With better insight into your risks, managers can anticipate potential problems and make proactive decisions to reduce or eliminate them.
Maintaining a safe and healthy workplace can go a long way toward lowering your insurance premiums. Even a small improvement can result in significant savings.
A formal risk management strategy, including risk management software, can help demonstrate your commitment to loss prevention and reassure insurance companies that your business is a low risk to insure.
Next, read about 7 new ways to identify EHS risks.