In today’s challenging insurance landscape, businesses face increasing pressure to manage their risk profiles effectively. As outlined in the book The 10 Laws of Insurance Attraction, one crucial area that can significantly impact property insurance premiums is the management and maintenance of your facilities. This article explores the benefits of focusing on your facilities to reduce property insurance premiums, particularly in the current hard insurance market.
Understanding the Hard Market
The insurance industry is cyclical, alternating between soft and hard markets. In a hard market, insurers become more selective, premiums increase, and coverage may become more restricted. This makes it crucial for businesses to present themselves as attractive risks to insurers.
The Impact of Facility Management on Risk Perception
Insurance companies assess risk based on various factors, including the condition and management of your facilities. As Leng emphasizes, “How well you keep your house in order, or in this case, your operations, the facilities that house your operations, and how well you follow your Policies & Procedures will all impact your success.”
Key Areas of Focus for Facility Management
- Housekeeping
Proper housekeeping is a critical factor in risk assessment. Insurance companies pay close attention to:
- Cleanliness of workstations and equipment
- Management of dust accumulation
- Organization of materials and inventory
- Maintenance of clear walkways and exits
Regular cleaning schedules and documented housekeeping procedures can significantly improve an insurer’s perception of your risk.
- Facility and Equipment Maintenance
Insurers value businesses that proactively maintain their facilities and equipment. Key aspects include:
- Regular inspections and maintenance of building systems (electrical, plumbing, HVAC)
- Documented maintenance programs for machinery and equipment
- Timely repairs and upgrades
The book notes, “Poorly maintained facilities or machinery increases the likelihood of a fire, mechanical breakdown, or an employee injury. Therefore, underwriters look at this and either increase premiums or decide not to offer insurance.””
- Fire Prevention Measures
Given the catastrophic potential of fires, insurers place significant emphasis on fire prevention. Important considerations include:
- Installation and maintenance of fire suppression systems
- Proper storage of flammable materials
- Implementation of hot work permit programs
- Regular fire drills and employee training
- Water Supply and Management
Adequate water supply for fire suppression is crucial. Insurers assess:
- Access to water sources and hydrants
- Water pressure and flow rates
- On-site water storage solutions (e.g., retention ponds)
The book provides an example of a company that did not have proper water supply from the local hydrant and installed a water retention system, which “reduced the cost of insurance and, therefore, repaid for the retention pond in a few years.”
- Sprinkler Systems
Well-maintained sprinkler systems can significantly reduce property insurance premiums. Key factors include:
- Proper design and installation for the specific facility and operations
- Regular maintenance and testing
- Clear documentation of inspections and repairs
The book cites a case where installing a sprinkler system reduced property premiums from “$1.20 cents per $100 of coverage to around $0.18 cents.” This allowed the employer to recover the costs in under 7 years.
Benefits of Focusing on Facility Management
- Lower Insurance Premium
By demonstrating a commitment to facility maintenance and risk management, businesses can negotiate more favorable insurance terms. Insurers are more likely to offer competitive rates to companies that present lower risk profiles.
- Improved Coverage Options
Well-managed facilities may qualify for broader coverage options or higher limits at more reasonable rates. This can provide better protection for your business assets.
- Enhanced Business Continuity
Proper facility management reduces the likelihood of accidents, breakdowns, and other disruptions. This not only helps in controlling insurance costs but also ensures smoother business operations.
- Positive Underwriter Perception
The book emphasizes the importance of underwriter perception: “Based on this information, an underwriter will determine what they perceive to be your Risk Profile and charge a premium to match that perception.” A well-maintained facility creates a positive first impression during underwriter visits or inspections.
- Competitive Advantage
In a hard market where insurers are selective, businesses with well-managed facilities have a competitive advantage in securing coverage and favorable terms.
Strategies for Effective Facility Management
- Implement Comprehensive Maintenance Programs
Develop and document detailed maintenance schedules for all aspects of your facility, including building systems, equipment, and safety features.
- Invest in Technology
Utilize modern technology for facility management, such as IoT devices for real-time monitoring of equipment performance and safety systems.
- Regular Risk Assessments
Conduct thorough risk assessments of your facilities to identify potential hazards and address them proactively.
- Employee Training and Engagement
Involve employees in facility management efforts through training programs and regular safety meetings.
- Documentation and Record-Keeping
Maintain detailed records of all maintenance activities, inspections, and improvements. This documentation can be invaluable during insurance negotiations.
Case Study: The Impact of Facility Improvements
The 10 Laws of Insurance Attraction provides an example of a wood products manufacturer facing rising premiums due to industry-wide issues. By implementing comprehensive facility management improvements, including enhanced dust control measures and safety practices, the company was able to significantly improve its standing with insurers, leading to a 40% reduction in premiums.
Conclusion: A Worthwhile Long-Term Investment
Focusing on facility management as a means to reduce property insurance premiums is not just a short-term fix; it’s a long-term investment in your business’s resilience and financial health. In today’s hard insurance market, where every aspect of a business’s operations is scrutinized, well-maintained facilities can be a key differentiator.
As emphasized throughout The 10 Laws of Insurance Attraction, success in managing insurance costs lies in taking a proactive, comprehensive approach to risk management. By prioritizing facility maintenance and safety, businesses can not only reduce their insurance premiums but also create a safer, more efficient operational environment.
Remember, in the eyes of insurers, a well-maintained facility is indicative of a well-run business. By focusing on your facilities, you’re not just reducing insurance costs; you’re building a foundation for long-term success and resilience in an increasingly challenging business environment.