Wednesday, March 14, 2012

Damage Control: Mitigating the Results of Increasing Product Liability Insurance Rates

It had to occur.

Product liability insurance rates for the supplement industry, which have been in a steep decline for about seven years, have bottomed out in the previous ninety days, and are almost certainly headed upwards in the near term.

Why? Rates have declined by 80% by some estimates. They couldn't go down without end. Insurers have been struck by catastrophic losses and an progressively litigious social environment. Interest rates are at historic lows with no end in sight. The ebb and flow, roller coaster effect of premiums for commercial insurance has historical precedence and is destined once again to rise.

However there are various practical steps you can implement that improve the odds that you will survive the seller's market for insurance and stick around to take advantage of the next buyers market when it comes.

Here are some tips.

Don't Delay Until the Last Moment

Start talking to your broker about your renewal at least 90 days before the renewal date. Underwriters will be asking more questions about your business, questions they weren't bothering to ask last year. Since the process is going to be more difficult, it will take more time.

Consider Coverage- In addition to Price

Take some time in understanding your coverage. And not just for product liability insurance rates (although for most supplement companies this is far and away the most pricey policy they purchase). Are the risks you're most concerned about insured in your current coverage? Do you know of areas where you have exposure but no coverage? Read your policies, or better yet meet with your insurance professional and conduct a comprehensive review of coverage. Be ready, as one more characteristic of a "hard" or sellers market is that insurance companies invariably attempt to reduce coverage by adding up exclusions and endorsements that conflict with what you thought you were buying.

Prepare Management for Higher Premiums

No one likes surprises. Mid-level managers at larger companies need to prepare the bosses for higher premium rates. Insurance buyers should communicate with internal senior management concerning the company's tolerances for uninsured risk, as deductibles possibly will rise and high limits of liability insurance might no longer be an affordable luxury.

Step in to your Underwriters Shoes

Attempt to imagine yourself as the product liability underwriter for your business. What questions would you ask and how can your company respond to them? You received a 483 warning letter this year (it's on the internet and your underwriter will find it)-do you have a ready and plausible explanation? Can you provide copies of the certificate of insurance program you mange for your suppliers or-do you even have one? Are there any elements of your website that would frighten away an otherwise interested underwriter (sports nutrition companies should take special note of this suggestion). Have you jumped from carrier to carrier every year (red flag for an underwriter) or does your record show that you have demonstrated some level of loyalty to one or two carriers?

If you've had insured claims in the past five years, are you prepared to tell your side of the story as to what happened, and present supporting records if asked?

Choose a Broker Who Specializes In Your Industry and Team Up

Have you ever said to yourself, "my broker clearly does not understand what we do"? Make it a top priority to find a broker who understands the supplement industry and will be an effective advocate for your insurance interests. Whether you supply raw material, finished product, or both, in a hard market the underwriter will still place you in the dietary supplement arena, where some unscrupulous characters still thrive. The reality is you are going to pay for that association, and a competent broker will have the skills to differentiate you from the rest of the pack.

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