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24Maritime Reporter & Engineering News By Ray Martino, President, Travelers Ocean Marine An essential part of spring cleaning issorting through what you have, deciding what needs to be kept, and throwing out what can safely be eliminated. The tidy end result lets you move forward in the best shape possible.An annual ?spring cleaning? of insur- ance coverage is equally valuable for a business operation. Whether the econ- omy is booming and cash flow is sub- stantial, or times are tight and shaving costs is essential, a business should step back at least once a year, take a look at its assets, and evaluate its current risk management strategy. The goal is to make sure the company is maximizing its benefit from premium dollars. In addition to involving internal ex- perts, such as legal counsel and account- ants, a company may also benefit by working closely with its insurance agent and carrier to understand both exposures and the insurance options available. The following list will help start the process. FOUR FACTORS TO WEIGH No one wants to pay more premium than absolutely necessary. But when aloss occurs, you also want to have the right coverage so there are no unpleasant surprises. As a guide, business owners should consider the following four fac- tors when making insurance decisions.1. ASSET VALUES The premium for property insurance islinked to the value of the asset covered, so paying attention to current values is an important strategy for controlling costs. Whether the asset is a barge, a pier or the building the business is run from, prop- erty values are subject to change over time. That means keeping the same pol- icy value year after year may leave a business either under or over insured. For example, the pricing for vessels has been on a roller coaster since the econ-omy contracted sharply in 2008. Today, the value of commercial vessels has re- covered somewhat and recreational boats have stopped deteriorating, but small lux- ury yachts are still under tremendouspricing pressure.In addition, the replacement value of vessels in new and used markets are often driven by the price of steel, which has been rising from the pressure of overseas demand.Similarly, the cost to replace physical structures such as docks or buildings fluctuates with the price of materials andlabor, and is also linked to the rising and falling fortunes of the construction in- dustry. Some asset values are easier to deter- mine than others. There are multiple sources to determine the value of a build- ing, such as industry estimates of con-struction costs per square foot. A pier?s value similarly can be determined by having someone provide an estimate of what it would cost to replace. Vessel valuation, however, can be trick- ier, since many vessels are specialized for certain jobs or customized in ways that make the used market an unreliable guide. Trade publications and even con- versations with competitors can be help- ful, but the most accurate answer will typically come from a professional sur- vey. To avoid the cost of an independent survey, vessel owners sometimes can turn to insurers that have surveyors on staff. 2. DEDUCTIBLE LEVELSAs a theoretical matter, deciding on a deductible level is all about the amount of risk a company is comfortable taking on and its ability to shoulder the burden of coming up with the cash if a loss occurs. On a practical basis, however, it is important to look at the interaction be-tween the level of deductible and the pre- mium cost, as well as the company?s expected number of claims. Take an owner who can easily afford to cover $5,000 in costs if something goes wrong, but who wants to save on premi- ums by raising the deductible to $25,000.The key question is not only can the owner afford that level of out-of-pocket expenditure, but also how much will be saved annually by taking on that addi- COLUMNINSURANCE UPDATE Spring CleaningShould Include Evaluating Insurance StrategyMR March 12 # 3 (17-24):MR Template 3/6/2012 1:30 PM Page 24
