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Your P&C premium dollars: Where do they go?

A business enterprise buys property and casualty (P&C) insurance in order to manage risk of loss and mitigate the damages associated with claims. They rely upon an insurance carrier to provide that insurance or an in-house department to manage retained risk or self-insurance programs.

Do you know how your P&C carrier is spending your premium dollars?

The insurance carriers charge a premium and in-house departments represent a budget line expense item. The question often unasked by business management is how are my insurance premium dollars spent by my insurance carrier. While the CFO of any business enterprise should regularly check the loss and expense runs of their P&C carriers–certainly at policy renewal time and regularly after a claim is reported–it is also necessary to demand a full analysis of the expenses claimed by the insurance carrier. Often, it will appear that the costs associated with defending litigation are inordinate and even exorbitant.

What about cost containment by the carriers?

A recent survey conducted by LexisNexis into U.S. property and casualty carriers reveals some disturbing facts about the cavalier disregard for cost containment among many P&C carriers. According to the LexisNexis survey, 26% of the carriers surveyed do not use early case assessment, even though 98%of them said it’s an effective technique for maintaining costs; 35% don’t e-bill, when 93% claimed it helps cost containment; 40% don’t employ flat fee arrangements, though 85% said they work; and 56% don’t have volume discounts with success bonuses, but 65% of the respondents think it’s a good tool.

One quarter of the respondents even said they expect to increase the volume of work sent outside over the next year and 56 percent predicted it would stay the same.

These are appalling statistics for any company attempting to manage costs associated with obtaining insurance in an ever increasing climate of property and casualty claims and litigation.

What can you do about it?

A great deal if you are “experience rated.” Even those companies which simply purchase an off-the-shelf/standard policy have some opportunity to insist on controlling costs associated with litigation.

The most effective way to reduce the cost of litigation is to eliminate hourly billing by the attorneys conducting the litigation.

Time billing lawyers are truly a millstone around the neck of American business.

The next most effective cost-saving practice is to insist that document management, document production, and “discovery” be conducted in-house under the supervision and control of corporate management, not outside time billing counsel.

Another opportunity for cost saving during litigation involves selecting and retaining “experts”. It is more likely that the business enterprise will have greater access and more economic leverage with subject matter experts than the attorneys selected by the insurance carrier.

If the cost of property and casualty insurance is a significant expense to your company, it is worth the time and effort to find out how are your P&C carrier is spending your premium dollars.