5 Big Insurance Mistakes to Avoid
Insurance may not be sexy, but it is becoming a bigger expense for almost every business. Here are the five common insurance mistakes and how they affect the bottom line.
Recently I had an interesting conversation with a CEO about blind spots in business leadership. In particular, she was discussing the way businesses purchase and manage insurance. She said it was one of her blind spots which she eventually recognized the hard way. With that in mind, I called Dave Dias, a friend of mine from InsuranceThoughtLeadership.com, and asked him what were the most common mistakes CEOs made regarding insurance. Below, he explains the five biggest mistakes:
If a CEO is disengaged at the time of policy placement or when a significant claim occurs, it will almost certainly cost the company money. Consider the example of one CEO who couldn’t have been more removed during a sensitive claim-settlement negotiation following a major fire loss. He wasn’t conversant on the issues and relied exclusively on his staff. By the time the CEO re-engaged and began asking pertinent questions, the most germane issues had already been negotiated and settled. The financial loss was in the tens of thousands of dollars. His absence was a big miss; the matter would have been mitigated more in his favor had the CEO been more engaged from day one.
Allowing Procedure To Trump Leadership
Overanalyzing an issue “by committee” delays critically-important decisions and costs the company money. One CEO was overly concerned about getting everyone’s buy-in for the implementation of a newly formed safety-compliance committee. Because of internal politics it took months to ultimately get the committee moving in the right direction. The long implementation cost the organization thousands because they weren’t in compliance when state authorities showed up for an unexpected inspection and faced fines as a result. The CEO could have easily avoided the liability by creating team accountability tied to specific goals and crisp timelines.
Not Exploring New Opportunities
Remaining comfortable with relationships can sometimes lead to complacency and can unknowingly cost the organization big money. One CEO had been deferring to his CFO who had a longstanding broker relationship. The CEO retained an outside consultant to review their best practices and discovered that they were overpaying insurance premiums to the tune of about $1 million a year. The CEO is now directly involved in the hiring process of all significant third-party vendors.
Not Realizing Your Biggest Competition
Most CEOs don’t realize that their biggest competition is the rising cost of health insurance. One CEO was able to recapture more than a million dollars of premium savings as a result of placing a higher priority on the cost of health insurance. SWOT (Strengths, Weakness, Opportunities, Threats) analyses now include the purchase of insurance premiums as a key business strategy which is being applied at all levels of their organization.
Not Making Risk Your Strategic Partner
Many organizations are paying “retail” insurance premiums when they should be using a financial construct that operates more like wholesale. One company was under the mistaken impression that they were doing a great job of managing their premium costs because of low loss-ratios and claims experience. That naivety cost them about 30 percent of additional savings which could have been realized using the right risk-transfer methodology. The CEO now drives a culture that demands analysis of those risk alternatives into their core process.
As you can see, it pays to be more informed about your insurance decisions. If you want a good resource, go to InsuranceThoughtLeadership.com.