The energy market is inherently volatile, and even small changes to the political, regulatory, and natural environments can invite new risks to the playing field. It’s no surprise that energy insurance rates have been unpredictable, as well. Right now, even with overseas sanctions and regulatory set-backs, there is anticipated growth within the sector, which is mirrored by what we are seeing in insurance rates. Rising insurance costs have the potential to impact all energy companies, and smaller upstream businesses will feel the brunt of these changes the most. Is there anything you can do to avoid these high premiums?
Changes Contributing to High Energy Rates
Trucking and transportation divisions are being hit with high premiums thanks to a combination of factors, including government mandates, environmental changes, and poor hiring decisions.
- Government Mandates – Backup cameras are now required to be installed on all new commercial vehicles. While cameras are good news for driver and pedestrian safety, they are bad news to those wanting to save money on insurance premiums; rear-end damage is now much more expensive to fix.
- Environmental Changes – The 2017 hurricane season was historically one of the costliest in US history, and 2018 may not fare much better. Insurance policies for vehicles located in regions prone to flooding have higher premiums as a result.
- Poor Hiring Decisions – It’s a great idea to run your motor vehicle reports (MVR) internally so that you are privy to the details they provide. A driver with a history of distracted-related accidents, or one with a history of DUIs, will be more expensive to insure.
The cost of insuring equipment has also been on the rise. As the demand for energy grows, so does the need for heavy equipment. Repairing old equipment or purchasing new equipment to support expansion can be great for business revenues, but it can add significantly to the entity’s overall insurance costs.
How to Mitigate High Insurance Rates
While there is no magic way to get around paying the high premiums if that’s where the market lies, there are a few techniques you can employ to help you lower it as much as possible.
- Employ strict safety standards. Utilize those MVRs and hire the best drivers you can find. And once those drivers are hired, hold them to a high standard. Let the drivers know what policies you take seriously (e.g. requiring only hands-free technology, setting a realistic number of miles, screening for alcohol or drug use, etc.), and have a zero-tolerance policy when they are found in violation.
- Introduce safe driving incentive programs. An incentive program can help shape a culture that values safety above all else, and your employees will step up and act accordingly. When you have employees whose habits support this culture, reward them for their efforts.
- Shop around before purchasing equipment. Do your research and purchase equipment that is inexpensive to insure. A well-known insurance broker who is familiar with your industry can help you make an informed decision. Keep in mind that insurance should be factored into the overall cost to purchase and run the equipment.
Here at LaPorte, we work with a variety of commercial insurance and surety brokers, and we recently had the pleasure of chatting with Scott Hunter of Carroll Insurance. He admitted that “along with the projected increase in energy production activity comes the proportional increase in insurance costs.” To ensure you are getting the best rate available during these periods of increased activity, he said, “it’s imperative that businesses thoroughly review their pricing, rates, and terms ahead of the swell, so they can make sure those costs are as lean as possible.” We couldn’t agree more.
Our LaPorte Energy Industry Group has years of experience working with businesses of all types in the energy sector, and we understand the industry’s needs and concerns. We have cultivated great relationships with commercial insurance and surety brokers, and we would love to connect you to the broker who is right for your needs. A good broker can be a lifeline to you as you navigate the ever-changing waters of the energy industry, so we’d like to help however we can. Contact us for more information.