This is a tough and challenging economy for many businesses. You may be like many business owners and cutting back on expenses. Unfortunately, insurance may be one of them. Don't make that mistake.

According to a recent report I read in American Agent & Broker magazine in March, 59% of agents and brokers responding to a survey indicated that their commercial clients were cutting back on insurance. The same held true for personal insurance, too. The Insurance Research Council projects that underinsured motorists on the nation's highways will increase from 13.7% in 2007 to 16.1% in 2010.

You might be saying, "Dan, I can't afford to be insurance poor. In this economy, I've got to be smart." Smart is actually not cutting back on insurance. It may actually mean increasing it!

Consider how much it will hurt if you have an uncovered loss today because you were trying to cut costs. Are you willing to tolerate that kind of risk?

The most obvious scenarios play out in the least known areas. Consider these examples...

• You choose to go without Employment Practices Liability to save money. An employee sues for wrongful termination or age discrimination after you had to reduce your work force. You may be in the right, but who's going to pay for your defense costs? Who pays if the judge sides with your former employee? The answer is you without insurance.
• You decide to drop your Commercial Umbrella policy this year to cut costs. What are the chances you will have a catastrophic loss anyway, right? The next week your driver plows into another car and permanently disables the other driver. Estimated costs are well over the $1,000,000 auto policy you hold. Your umbrella would have been enough to cover the remaining costs. Was it worth it?
• You decide to intentionally underinsure your property to save money. You tell your agent your inventory is down and give a low value. You suffer a partial loss to property due to a fire. When the insurance adjuster is done counting every lead pencil, you learn that you are being assessed a coinsurance penalty for being underinsured. Even though your policy had enough to cover the claim, you didn't understand the conditions of your policy and got burned (pardon the pun).

Okay, I hope you get my point. You shouldn't cut back on insurance. You might even have to pay more to cover that Employment Practices Liability or Umbrella policy. So how can you offset the cost and better manage your risk? Here are a few suggestions...

• Increase your deductibles. Most businesses have way too low deductibles. Raise them as high as you feel you can go.
• Determine which commercial vehicles don't need physical damage. Often, vehicles over 10 years old aren't worth what you are paying extra premiums for on the comprehensive and collision. Delete this coverage for the ones that it makes sense for cutting.
• Make sure you understand clearly your liability rating basis. If you estimate too high, you will overpay during the year. Yes, you may eventually get it back, but that's no good for cash flow.
• If you haven't recently, bid out your insurance. Your agent may be great but he or she don't represent every insurer. Do your due diligence and check the market. It's still soft (premiums low) and won't stay that way forever.

Don't be penny wise and pound-foolish. Find areas in your business to cut that make sense. Don't jeopardize all you've worked for by slashing your insurance coverage. If you commit to managing your insurance smarter, you will ultimately save money without sacrificing protection.



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