Insurance buyers see increasing value from reducing their total cost of risk across multiple lines of commercial insurance, according to a new survey commissioned by Wausau Insurance of 200 financial executives.
Eighty-one percent (up from 70 percent last year) of commercial insurance buyers said they save at least $1 in lost productivity expenses for every $1 saved by reducing workers’ compensation claim expenses. And three-fourths, up from 60 percent last year, of respondents said they save at least $1 in lost productivity expenses (and related uncovered loss of value) for each $1 saved by reducing claim costs for general liability, property and commercial auto lines.
“Insurance buyers are gaining a greater appreciation of indirect costs,” said Mark Fiebrink, president and chief operating officer of Wausau Insurance. “Our benchmark data shows an upward trend of understanding of the total cost of risk among insurance buyers, and their agents and brokers play an important role.”
More than two-thirds of respondents said their agent or broker “always or usually” counsels them to consider the total cost of risk, in addition to the direct cost of premiums and deductibles, when considering property and casualty coverages. Another 18 percent said their agent or broker “sometimes” counsel them to consider the total cost of risk.
Most survey respondents said they save at least $2 in lost productivity expenses for every $1 saved by reducing claim expenses for all four lines of coverage. For the second year in a row, respondents said they get somewhat higher lost productivity savings from workers’ compensation than from the other three lines of coverage, although the gap is narrowing.
Fiebrink said the survey findings for workers’ compensation seem generally consistent with various industry estimates (including the Occupational Safety and Health Administration) that peg the ratio of indirect to direct costs at 2-1 or 3-1. A Liberty Mutual-sponsored survey of financial executives for mid- to large companies in 2001 found a median ratio of 3-1. However, there has been comparatively little industry focus on the potential indirect costs (lost productivity and related uncovered loss of value) of claims for property, general liability and commercial auto.
The perception that there are greater productivity savings from workers’ compensation may under-estimate the potential of other types of claims, and the new survey data indicates mid- sized employers are beginning to recognize that, Fiebrink said.
“We need to expand the focus beyond workers compensation,” Fiebrink said. “The direct claim costs of workers’ compensation have been called the tip of the total cost ‘iceberg’ by some experts. We believe a similar analogy may apply to other lines once the ultimate cost, and uncovered loss of value, from those claims becomes more clearly understood.”
Other findings in the survey include:
– Executives from upper mid-sized companies (more than 500 employees) report much higher productivity savings by reducing claim costs in all lines than executives from lower mid-sized companies (between 100-500 employees).
– About 70 percent of respondents have combined at least two lines of commercial insurance with one carrier, although among employers with more than 500 employees, the percentage was much higher.
– Nearly 60 percent of insurance buyers said their agent or broker “always or usually” encourages them to place multiple lines of coverage with one carrier, with another 30 percent saying their agent or broker “sometimes” provides such counsel.
– Among those who have combined at least two lines of coverage with one carrier, nearly 90 percent said they achieved significant efficiencies (saving at least 4 percent per year).
– General liability and property and workers compensation and general liability were cited as the two coverage pairs most likely to achieve significant efficiencies when combined with one insurance carrier.