In Pursuit of Profit
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Over the last several years commercial insurance rates have been making the headlines of business news outlets in a way that has been difficult to read, and even more difficult to bear! Why? U.S. commercial insurance rates rose 6.6% on average in Q4 of 2023 compared to the same period in the year prior with Commercial Auto, CMP/BOP (Commercial Multi-Peril/Business Owner’s Policy), General Liability, Commercial Property, and Excess Umbrella policies reflecting the highest price increases. According to analysts, the rise is primarily due to increased losses, higher court awards, and widening exposures. A recent article from the global commercial insurance channel, Business Insurance, reveals that on top of these widespread price increases General Liability coverage is also getting more restrictive in response to state law changes. And while General Liability rate increases seem to be lower for insurance policy renewals (especially for multi-line policies), they are trending upward as well. The experts point out that given the current climate, businesses with a history of significant losses or greater risk exposure will likely face increased underwriting scrutiny and unfavorable pricing rates through 2024 and into 2025. So, what do these changes mean for your organization, and how should it respond? We’re here to help you understand how to view this topic through an accounting lens so your business can be better prepared financially! Assessing The Business Impact
Like any cost increase, rising insurance rates are having a clear financial impact on today’s businesses. Higher costs cut into profit margins and affect overall profitability. A company’s budgeting process must take these rising costs into account, not just right now but into the future as well! Financial leadership should be thinking internally by analyzing the day-to-day business operations and asking: Where can waste be reduced to help offset these costs? Could changing payment terms or offering payment incentives to speed up A/R provide the cash flow needed to absorb these costs? Lean heavily on your accountants in this process because they are going to be in the best position to help analyze these variables. Organizations must also project future increases and include those projections in the budget to plan strategically around how they will deal with them. Financial leaders should be asking questions like: How will we handle these increases? Do we need to raise our prices to offset them, or will we cut costs elsewhere to absorb them? What are our competitors doing? Your accounting team should be providing the most accurate and up-to-date financial information to help your leadership team make these kinds of decisions. Responding to Rising Insurance Costs An organization’s strategic response to rising insurance costs should always include an insurance review. Reevaluate your business insurance plans to ensure that you have the proper coverage paying specific attention to the terms of the policy. The goal is to avoid overpaying by having more coverage than is necessary while still maintaining critical coverage for your organization’s specific needs. And don’t assume that just because your insurance has a hefty price tag that it’s necessarily giving you the coverage your business needs because the cost to replace things is a lot higher than it ever used to be, so you could be underinsured and not even realize it! Price out different coverage options and determine where they fit in the budget based on cash flow considerations. Additionally, from a risk management perspective, there are steps that the business can take to reduce potential claims in the way of equipment upgrades, enhanced cybersecurity measures, investments in safety, employee wellness programs, and so on. An organization’s leadership team can come up with ideas and its accounting team can evaluate the costs required to implement them to assess their viability. Understanding How Your Accounting Team Can Help In many cases, providing transparency around business finances (especially related to past claims) from an organization’s accounting team and implementing risk mitigation strategies can help to offset industry-wide increases, at least to some degree. Leaning on experienced financial personnel can also allow companies to find a more favorable rate when shopping for business insurance and during the policy renewal process because there is considerable nuance in how questions are asked and should be answered with respect to the company’s risk profile that insurance companies will use to determine pricing. When you need an experienced accounting team in your corner, we can help! Our consulting accountants can come alongside your company to help it navigate rising costs of all kinds, including business insurance rate increases. Find out more about our U.S.-based outsourced accounting services today! |
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7/17/2024