Lack of commercial insurance available at an affordable rate is stymieing redevelopment of the Mississippi Gulf Coast.
“We have had several developers stop projects because of the projected insurance costs we gave them,” said Wayne Tisdale, executive vice president, Stewart Sneed Hewes/BancorpSouth, Gulfport. “Before the storm, a substantial project within the range of $3 to $4 million would have insurance costs of $10,000 to $15,000 per year. After storm it could be $50,000 to $60,000 for an abbreviated policy with higher deductibles and less coverage.”
Tisdale said there has been some improvement in capacity. Some large commercial entities weren’t able to get full coverage at any price after the storm. For example, insurance might not have been available for a school district that needed $50 million to $60 million in coverage.
“This year we are able to buy full limits if the price can be afforded,” Tisdale said. “Capacity has come back some. Typically if capacity comes back, prices should come down. But I can’t promise you that. Around the country today commercial insurance prices are softening. There is more supply and prices are getting lower, with the exception of coastal property. Insurance for coastal property anywhere in the U.S. is still not easy to get.”
Tisdale said there isn’t really any affordable insurance now for commercial customers on the Coast. Prior to Katrina, commercial clients could make improvements to the property that would reduce rates. Now if you have an excellent building, it may mean you can get coverage at some price rather than no coverage at all.
“We’re having some customers who are just not buying the wind storm coverage,” Tisdale said. “Of course, we have to require them to sign a letter saying they know they have no wind coverage. In some cases they maintain they can’t afford it, and I can certainly appreciate that. If you own the building and don’t have a mortgage, you can be self insured sometimes. But it is not advisable.”
In the six coastal counties, generally what will happen in almost every case is carriers will exclude wind coverage, leaving purchase from the state’s Wind Pool Underwriters Association as the only option. Tisdale said with some of the larger properties for cities, counties and schools, they have been buying a layer of coverage with the Wind Pool, and then purchasing additional insurance from someone like Lloyds of London to come in above the Wind Pool. For example, a $5-million building might have $1 million worth of insurance with the state Wind Pool and $4 million with Lloyds of London’s.
Almost all of the large properties will have multiples carriers. Tisdale said he had one property schedule placed last October on a governmental entity that had 14 insurance companies on it.
“That is what it took to get all the holes filled,” Tisdale said.
Some positive things are happening in the state’s commercial insurance market, said Lee Harrell, deputy insurance commissioner, Mississippi Department of Insurance.
“We will have an announcement in the coming days or weeks that one of the commercial carriers will be announcing a reduction in rates,” Harrell said. “It is going to take a while for Mississippi to recover, but we haven’t seen companies really exiting the commercial market. They are still here. They may not be growing a lot as far as new business, but they are keeping what they have, which is great news. Hopefully we can continue that and grow in the future.”
In order to keep commercial insurance as affordable as possible, Harrell recommends meeting with an insurance agent to do a thorough evaluation of what is covered versus what is actually needed.
“Do you have a lot of inventory?” Harrell asks. “What kind of business interruption or loss of income coverage do you have? What do you need? What would be the cost of relocating and setting up a new shop? Katrina really brought that home to an untold number of businesses. When you have to relocate, who is going to pay for that relocation?”
Look at increasing the deductibles. Harrell said in some situations doubling your deductible could result in a substantial savings in premium costs. But don’t make the deductible so large that if you have a claim you aren’t able to recover.
Another important piece of advice is to shop around early when insurance policies are up for renewal.
“Shop around with several agents,” Harrell recommends. “Some agents have more markets than other agents. Don’t wait until the last moment. The big issues with wind and water, hopefully that is something everyone is looking at. National Flood Insurance is a very good buy. It is very cheap.”
Another piece of advice is to look for an insurance agent who specializes in your kind of business.
“If you are a dry cleaner, you may want to get someone who specializes in that kind of business,” said Loretta Worters, vice president of the Insurance Information Institute. “The dry cleaners association or other people in your line of business may have some suggestions. There are a number of things you can do to keep your rates down. The biggest thing is to shop around because prices vary from company to company. It is good to work with an agent who understands your overall business and finances. They can find more competitively priced products.”
She adds that package policies are often less costly. Multiple policies with one insurer sometimes can provide a discount.
Business owners can also be rewarded for taking specific actions to prevent losses. An example might be a workplace safety program or devices that reduce losses like sprinklers, burglar alarms and smoke alarms. Disaster preparation is another way companies are working to mitigate losses.
Effective human resources handbooks in place that specifically outline the company’s policies and procedures regarding sexual harassment or discrimination are also important.
“That shows the insurance company that the company is being vigilant, and that always bodes well for a company,” Worters said. “The whole issue of taking steps to prevent losses is the biggest issue. If there are lots of claims against a company, insurance companies may decide to non-renew your policy or charge you more money because you are such a risk. But when an insurance company sees you are taking steps to make your business safer and less likely to have a risk, the insurance company will view that favorably.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.