INSURANCE INSIGHTS
Insurance rates / premiums, exposure, and risk:
What goes up must go up, up and up?
By David Pearsall
Have you ever been playing fetch with your dog, and their ball or disc gets stuck in a tree, or flies over the backyard fence? If so, and your dog( s) are anything like mine, they will immediately see where their ball or disc ended up, and look back at you with that face that says“ you did see where that landed, right?” or“ how long is it going to take for you to get it this time …?” while presumptively thinking“ if he’ d just keep the gate open or take us to the park, we wouldn’ t have this problem...”
For most trainers( and adult humans across our country), the above scenario is quite similar to our reaction when it comes to our annual insurance renewal( s) bill. Whether it’ s auto, homeowners or renters, health, or business insurance, it seems like every year the bill we receive just flew over the fence or is stuck way up in a tree, while we look at our insurance agent or company representative to take us to the park( so this won’ t keep happening). And so, for this briefing, let’ s go to the park together about the many reasons for these neverending renewal increases. Some make complete sense and are easy to understand and explain, some of them we might all understand, but not like very much, and a couple more that even a seasoned insurance professional cannot explain.
Let’ s start with the easy-to-understand or easier-to-explain reasons, beginning with the definition of insurance, which is a contractual relationship between a company or government and an individual or business( aka the client / aka the insured) for a promise or guarantee of reimbursement for a specified risk of loss, in return for a payment or premium. Obviously the higher or greater degree of risk, the higher the cost or premium one can expect to pay to insure it. To measure a specific risk or risks and assign a dollar amount, insurance companies must first identify and define the risk exposures involved, determine the likelihood of them happening, and determine what it will cost them if the actual loss occurs.
For example, in a general liability insurance contract for a dog trainer, the risk being contemplated by an insurance company is the potential for bodily injury or property damage to a third party due to the trainer’ s negligence and / or alleged negligence. Insurance companies determine what each individual trainer or training business annual premium will be by the amount of training or volume they perform annually and typically measure that volume via the business’ s annual gross sales. And, if a training business also offers and./ or provides other related pet services such as grooming or pet sitting, or sells pet supplies, the insurer may break each of these services / categories out separately if they believe there is an higher or lower potential for a potential loss from another service, or if they feel the potential for loss from all services and products offered by the business is roughly the same, they may opt to combine, and base off the total annual gross sales for all of the services and product sales combined.
In other words, if you’ re a part time trainer, and training dogs is more of a hobby or a side gig, as opposed to your full time job or career, and you train one or two dogs a year, your risk exposure is minimal compared to that of a training business that has a physical training facility with 10 full-time employees providing training, dog boarding and daycare, and grooming services seven days a week. Most will agree that this makes sense, and that the larger business should pay more, but this article is not about the obvious size differences, it’ s about renewal increases, right? So why is both the part-time trainer, and the seven days a week training facility business receiving a renewal increase? Great question! And the answer is one that many trainers / business owners fail to consider when they are first starting out, and receive their first or second premium renewal invoice, which is the growth of their business. You see, as your gross sales and your business grow, so does your risk exposure, and unfortunately, your annual premium. While you may think it is still just you and that your business is exactly the same size because it is just you, be sure to consider whether your volume / gross sales are growing, and if so, be aware that it may be your business, not the insurance company, that was responsible for your renewal increase.
Now let’ s look at those renewal increases that also make sense when explained, but none of us are happy about it, especially when we see our hard-earned money going over the fence every year, and no one ever brings our ball( money) back. The truth is that many of us will pay our insurance renewal each year and may never actually incur a claim. So when you receive a renewal increase, and you know for a fact your business has not grown or added exposures, and has never incurred a claim or cost your insurance company a dime, well, you’ re left once again looking back like our dogs do to us when the ball goes over the fence,
40 Better Training Through Education Photo: Adobe Stock