Recession-Proof Your Risk Management Strategy

SEPTEMBER 6, 2022

Approximately 81% of American adults think the U.S. economy is likely to experience a recession in 2022, according to a CNBC + Acorns Invest in You survey, conducted by Momentive. A natural reaction to a recession is to reduce expenses. Insurance is an area where individuals may look to cut costs. Help recession-proof your risk management strategy, with suggestions from USI Insurance Services to:

• Avoid common pitfalls that increase your insurance premium
• Maximize premium dollars spent
• Resist trimming coverage in critical areas (and why)

Common Missteps That Impact Insurance Premium

Are you aware that when you call your insurance company to discuss a potential claim, it may raise your insurance premium? A CLUE report (Comprehensive Loss Underwriting Exchange) is like an insurance report card and is used by insurance underwriters to assess risk. One area the CLUE report tracks is potential claims.

The good news is that you have control over your own CLUE report. Choosing to work with an insurance broker places a buffer between you and your insurance company. Your broker is available to provide guidance for claims without impacting your CLUE report, which can save you premium.  

Window chips and cracks: Have you had a window chip repaired at the carwash? Unfortunately, these repairs may be reflected on the CLUE report, even if the repair person tells you they do not submit the claim to your insurance company. Any time the insurance company pays for chipped windows or broken glass, it may be listed as a claim and increase the cost of your auto insurance. Pay for these minor inconveniences out of pocket — it will save you money in the long run.

Getting towed or requesting a battery jump: When you have an insurance company tow your vehicle or provide a jump for your car’s battery, it may potentially be listed as a claim. These small claims impact your CLUE report and increase the cost of your auto insurance. It is less expensive to pay for a AAA membership that includes these services. Or, if they were included when you purchased the car, use the services provided by the dealership.

Maximize Dollars Spent on Insurance Premium

Umbrella/Excess Liability: Adding an excess liability or umbrella policy can save money while increasing coverage. An umbrella or excess liability policy may generate a credit on your home policy. Further, you may be able to lower your liability limits on your auto and homeowners insurance, which also creates premium savings while improving coverage.  

Credits, Credits, Credits: Home improvements may generate credits on the homeowners policy. Talk to your broker. Review and discuss any current or potential credits for which you might be eligible and that may create premium savings.

Where Not to Cut Back

Auto insurance: As tempting as it may be to reduce your auto liability limits or drop coverage, if there is an accident, it may cost you hundreds of thousands of dollars out of pocket. If you do not have a loan on the car, you may be able to drop physical damage coverage, but you should keep liability coverage. If you are in an accident, a lackluster economy may cause injured parties to seek larger rewards.

Uninsured/underinsured motorist coverage: This is a pricey coverage; however, as times get tough, more people may become jobless and stop paying for automobile insurance. If you are unfortunate enough to be involved in an accident with someone who has no or inadequate insurance, this coverage will make you whole. If someone cannot afford auto insurance, they likely will not have funds to cover repairs to your vehicle, medical bills and your lost wages. Therefore, it is important to keep this coverage as part of your risk management strategy.

Reducing coverage on your homeowners policy: A common misconception when reviewing a homeowners policy is that the dwelling value is too high. Remember, the dwelling value on your home is the price to rebuild the home today with like-kind and quality materials. The dwelling value is not the market value or tax appraisal value. Do not reduce the dwelling value on the home because you think it is too high. The premium savings is not worth it. Consult with a professional first. If the home gets destroyed, you will need to come out of pocket to rebuild.

Increasing your deductibles to amounts you cannot afford: As tempting as it is to raise deductibles to save money, it may cost you long-term. Remember, the deductible is the amount you need to pay out of pocket before the insurance policy responds. Make sure you can afford to pay the deductible before you change your policy.