How to Think About Insurance

I believe success is both your situation and how you think about it. How should you think about insurance?

A really bad way to think about it is you “win” if you collect more in claims than you paid in premium.

If it’s a big claim (house fire, car totaled or lawsuit), the best you can hope for is to offset your financial loss, but even so you will have experienced a very unpleasant hassle.

If it’s a series of small claims, your insurance company will increase your rates or cancel your insurance forcing you into the high cost, low quality “secondary market”.

Either way, you don’t win.

A good way to think about insurance is to “partner” with your insurance company. You get protection against unavoidable major risks at reasonable rates. In return, you manage the risk exposure for yourself and the insurance company. You “win” if you never have a claim, but if you have one your financial loss is offset.

The best risk management ideas are common sense:

Homeowner:

  • Maintain (e.g. replace old water heaters before they blow, cut down old trees before they fall)
  • Protect (e.g. get a water leak detection system, make sure your smoke alarm is linked to the fire department)
  • Control (e.g. don’t own a vicious dog, trampoline or water slide)

Auto:

  • Avoid Distractions (e.g. texting, phone, eating, and make-up)
  • Drive Defensive (e.g. speed limit and aggressive moves)
  • Set Rules for Young Drivers (e.g. limit friends in car, limit night driving)

Small Business:

  • Manage Premises (e.g. take steps to avoid slips/falls)
  • Manage Autos (e.g. maintain your vehicles, require clean records for drivers and don’t allow texting)
  • Manage Product (e.g. establish a risk management culture and use quality control engineering)
  • Manage Professional Risk (e.g. get professional education, avoid distraction and overwork where mistakes can be made)
  • Manage Employees/Worker Compensation (e.g. establish policies and training for a safe workplace and avoid sources of employee lawsuits which include sexual harassment, wrongful termination, failure to hire, hostile workplace and retaliation).

Business specific risk management is beyond the scope of this newsletter so call me if you want to learn more. One key for small business owners is to find an experienced insurance broker they can trust to structure the insurance package and let them shop the carriers. If small business owners shop on price across brokers they create a strong incentive for less ethical brokers to propose stripped down coverage. Most ethical brokers (like me) will decline to participate in a price-driven beauty contest for that reason.

Bottom line: forget about getting your premiums back in claims dollars. My hope for all my client friends is they never have a single claim.