Alberta is an oil-driven economy – old news to businesses currently affected by the decline in oil prices. The ongoing slump in the economy is forcing companies to focus on preserving their viability, from organizations directly involved in exploration and production to industries supporting resource development construction and manufacturing.
We’ve been here before: some companies will weather this downturn with manageable impacts to their organizations, while others will find their positions more difficult to maintain. The difference between these two outcomes may depend upon the extent to which companies take advantage of all existing and necessary opportunities to review their operations and maximize the efficiency of their operational spending.
Fortunately, a number of insurance-specific measures are available to manage cost:
- Review your revenues with your insurance broker: request that your broker amends revenue projections immediately rather than waiting for your renewal cycle to come around.
- Review your operations with your broker to find opportunities to tighten your coverage and premium structure: suspending operations for which specific coverage was required may enable you to reduce associated premiums during the downturn. Reducing the scope of your operations, including suspending services or avoiding international operations, may reduce the degree of risk your business presents to the insurer – opening up options to reduce your current premiums or to approach new insurers who may be a better fit for your revised strategy.
- Review your active contracts: you may be able to trim your premium expenditure by accounting for reductions in the scope of existing contracts, or the cancellation of contracts for which specific coverage was previously purchased.
- Update your equipment list and property schedule: remove items that have been disposed of or which you would not replace in the event of a loss. Ensure that your property is properly assessed to reflect its current value or replacement cost.
- Determine what equipment you’re using and to what extent it is in service: if you’ve parked, stacked or laid up a significant amount of your insured equipment, your broker may be able to leverage this reduced utilization to achieve favorable rates more closely matched to your current exposure.
- Ensure your broker is aware of all security measures which reduce the insurer’s exposure and could achieve reduced rates: security systems, patrols, fire protection, fencing, CCTV and GPS systems are examples of measures which may work to your advantage.
- Review your schedule of drivers: you can help ensure accurate rating by removing drivers who no longer operate your equipment and by managing drivers whose past performance may adversely affect your premium.
- Review your deductibles: always keep deductibles within your risk tolerance while ensuring that you consider and take advantage of the premium reductions that can be achieved by selecting higher deductible amounts.
- Secure an appraisal of your property: if an appraisal hasn’t been recently conducted, your values could be out of date. Over-insured property may be costing you unjustified premiums, while under-insured property may cost you even more in the event of a loss – affecting your cash flow due to unbudgeted expenses and shortfalls in coverage. Ensure that your policy limits are precisely matched to your current and anticipated future needs.
- Explore premium financing options: your broker may be able to offer financing options which reduce the immediate budget impact of your insurance portfolio while keeping the cost of financing within a range acceptable to you.
Other creative business strategies may exist to enhance your survivability by managing costs:
- Revisit your supplier contracts: ensure you’re getting the best possible value for your dollar. Utility and telecommunications companies offer fixed-rate deals that can help you control and plan for future expenses; they also have few variable costs, so it’s in their best interest to retain as many customers as possible. If your current provider is unwilling to bend, look for innovative solutions from competing providers.
- Review your employee benefits plan and compensation structure: this is an opportunity for private and public companies to engage stakeholders in developing solutions and ways to share the load.
- Proactively manage your human capital costs: minimize your future rehiring and retraining expenses by retaining the employment of as many personnel as possible. Consider initiating involuntary, rotating unpaid leave programs, or using earned vacation time in lieu of unpaid leave.
Remember that a harsh economic climate presents unique challenges – not just to you, but also to your competitors. While a downturn requires you to adjust your outlook and refocus your operations, it’s also an opportunity to tighten up your budget and maximize efficiencies to outlast your competition and be lean and ready for the next boom.