Prairie Ironworks - Renewal Under Loss Deterioration and a Broker Rate Cut Demand
Prairie Ironworks, a structural steel fabricator (NAICS 332312) in Peoria, generates $62M of revenue and runs 340 employees across two shifts. The package program - GL, auto, property, and inland marine on a $1.4M mobile welding rig - renews July 1 at a current premium of $486,000. Five-year loss ratio is 77%. But the last 24 months show $1,120,000 incurred against $924,000 earned, driven by two laceration claims in the same fabrication bay and a $310,000 forklift strike that damaged a customer's finished steel. The plant manager says the shear guard was replaced in March and a pedestrian walkway was painted in April.
The broker wants a 15% rate reduction plus a $100,000 per-occurrence deductible to hold the account against a competing quote. Your authority is $250,000 of new or renewal premium with no more than a 10% deviation from manual, and the casualty treaty carries a $500,000 per-risk retention. The broker has not supplied the OSHA 300 log, the updated payroll split by class code, or the competing carrier's terms and exclusions.
1. What can you bind today, and what must you obtain first? Show the arithmetic behind the pricing gap.
Read the worked answer
Authority first. A 15% reduction takes premium from $486,000 to $413,100. That is a 15.0% deviation, outside my 10% deviation authority, whose floor is $437,400. A 15% cut needs a referral no matter how good the safety story is.
Loss arithmetic.
- 24-month earned $924,000; incurred $1,120,000 → 121% loss ratio.
- Annualized incurred $560,000; add 12% LAE → $627,200.
- At a 30% expense ratio and 5% target profit: $627,200 ÷ 0.65 = $965,000 indicated.
- At $413,100 the account would run a 152% loss ratio on current, untrended losses.
The gap is roughly $480,000, not a rounding error. A competing quote at $413,000 is only credible if it is buying a different exposure.
Do not bind until I have: (1) the OSHA 300 log and both incident reports - were the lacerations the same machine, and is the March guard replacement documented? (2) updated payroll by class code and the subcontractor/OCIP schedule; (3) five-year loss runs valued at 36 months' development plus reserve adequacy on the open forklift claim; (4) the competitor's full terms - a carrier can hit $413,000 with a $250,000 SIR and an exclusion for damage to customers' property, which is exactly the exposure that produced the largest claim.
2. Recommend a renewal structure - premium, retention, and terms - and defend it against the broker's request.
Read the worked answer
Recommendation: $486,000 (0% change), $100,000 per-occurrence SIR with defense inside the SIR, and a loss-sensitive feature.
- A deductible credit is not rate. On a $62M-revenue fabricator, a $100,000 retention is worth roughly 8–12% of manual, or $39,000–$58,000. That funds part of the retention but cannot be donated on top of a 121% loss ratio. Any credit must be paid for by the retention, not by rate.
- SIR over deductible. An SIR keeps claims handling and defense in the retained layer, removes deductible billing friction, and gives the insured a direct financial reason to close the open forklift claim. A deductible invites reimbursement disputes at exactly the moment the relationship is most fragile.
- Terms that address the actual drivers: a claims-control credit conditioned on written verification that the shear guard interlock is installed and the walkway is in use; a tightened sublimit for damage to customers' property unless the insured's quality-control process is documented; a $5,000 sublimit on the mobile rig until the inland marine schedule is updated; and a three-year loss-sensitive program (65% loss ratio cap on a 12-month look-back) so the insured keeps the benefit of its own safety spend.
- Treaty check: the $500,000 per-risk retention is untouched by a $100,000 SIR; no facultative support is triggered.
If the broker produces a genuine $413,000 quote, the correct response is to ask what it excludes, not to match a number I cannot support in the file.
3. Write the file note that would support your decision if the account is later litigated or audited.
Read the worked answer
File note - written before the broker call, updated after.
- Decision and date: renewal bound at $486,000, $100,000 per-occurrence SIR, effective July 1. Deviation 0% from manual; within the $250,000 premium authority.
- Exposure: NAICS 332312; $62M revenue; 340 employees; two shifts; mobile welding rig $1.4M; customer-property exposure from finished steel handling.
- Loss summary: five-year LR 77%; 24-month earned $924,000 / incurred $1,120,000 = 121%; large losses itemized with reserve status and 36-month development.
- Pricing: indicated $965,000 at 30% expense, 12% LAE, 5% profit. Bound premium reflects a $__ retention credit and a documented competitive-market judgment. State the plan to correct: minimum 10% rate at each of the next two renewals absent loss improvement.
- Risk improvement: guard interlock installed March, walkway painted April; verification (letter or photos, dated) attached.
- Refused requests: 15% reduction and $100,000 deductible as proposed; reason recorded (deviation beyond authority and loss experience).
- Coverage limitations imposed and why.
- Sources: OSHA 300 log, payroll audit, loss runs dated __, competitor's terms.
An auditor or claim counsel is looking for a decision trail, not a defense. Record what you saw, the numbers you used, and the alternatives you rejected - including the referral you would have needed.