Unemployment insurance costs
There’s one unchanging fact when running a business. No matter what the size, you cannot separate the business from its market. It’s for the owner to identify the market niche and sell to it consistently enough to generate a profit. Should something happen to disturb the confidence among the customers/clients, there’s a real risk the business may be lost. This is the current problem for small businesses across America. Although we may have emerged from the recession as a matter of technical accounting at a federal level, there’s a continuing loss of confidence in the markets. At first, the average person cut down on discretionary spending and took action to reduce indebtedness. This significantly reduced buying power and the majority of businesses had to respond by cutting staff. For this reason, unemployment has remained over 9% for the last three years. In fact, the actual number of unemployed is far higher because the federal statistics only count the number of people claiming benefit and, unless market sentiment picks up significantly, unemployment is likely to remain high for the foreseeable future.
However, cutting overheads by reducing staff is a difficult balancing act because of the unemployment insurance (UI) costs. UI is a program to pay cash to those who lose their jobs. It’s jointly administered by the federal and state governments. In theory, it’s a program based on the notion of fairness. If a business terminates an employee, that business owes a responsibility to cushion the loss of pay while the ex-employee seeks alternate employment. Except, the rise in UI costs has made the economics of dismissal difficult. UI is a tax based on three factors: the size of the payroll, the amount the business has paid into as UI, and the amount claimed from that UI fund. So if a business is proposing to terminate a fairly senior employee of long-standing, the business should consider what claim this employee might make for benefit. Even one claim can result in a tax increase of several thousand dollars.
Accident fee billing
Over the last three or four years as the recession has bitten into government revenues and deficits have risen, many have turned to accident fee billing as a way of adding to the state’s or local government’s income. The idea is simple. If there’s a traffic accident and an ambulance, fire services and the police attend, the drivers involved get bills sharing out the cost of these public services. As you might imagine, this is somewhat controversial and, in some states, there’s been a major backlash of public opinion. Indeed, the lawmakers in thirteen states have formally outlawed the practice. In others, at a local level, the bills are only sent to nonresidents. The theory here is that local people already pay for local services through their taxes. That means they are less likely to care if their local government tries to recover costs from those passing through. So how does it all work?
All the equipment used by the fire department has a cost starting with depreciation, through maintenance, and finally to the labor to deploy the equipment to the crash scene. When asked, most departments produce a cost-per-hour for dealing with the emergency call, allocating staff to the firetruck, ensuring all the necessary equipment is on board, the gas to power the truck to the accident, and so on. Needless to say, this is an expensive proposition even if there’s nothing for the men to do when they arrive. Indeed, they may actually arrive after the vehicles involved in the less serious accidents have driven away. This is not a criticism of the speed of the fire service’s response. Sometimes third parties call out the rescue services not being sure whether there will be a fire or there will be a need to cut people out of the wreckage. The same applies to ambulances and, to some extent, the law enforcement officers.
Premium rates rising fast
There’s an increasing disconnect between what the TV ads are saying about the rates for insuring your vehicle and the quotes floating into your inbox. The marketers would have you believe there’s no problem in finding really cheap insurance (but only with their company, of course). Yet the insurance industry itself funds the Insurance Information Institute as a research body. It regularly publishes studies. Mostly, they are uncontroversial. So it came as a surprise when it revealed a steady rise of some 10% in the premium rates between 2008 and 2010. The latest straws in the wind are also suggesting a further rise of some 4% this year. When you consider the rate of inflation has been zero – there has been a recession, after all, and many prices actually fell – it’s a disgrace the insurance industry has been pushing up its prices.
Yet, when a talking head does appear above the parapet to talk for the industry, the message is always the same. The rates are going up because the repair and medical costs have been rising faster than inflation. Indeed, when you look at all the evidence on medical costs, you can believe what these insurance apologists are saying. Then you have to ask yourself about the value of the US dollar. It’s been falling steadily over the last three years. So the cost of all those imported spare parts from foreign manufacturers has also been rising. If these same insurance companies were not announcing increased profits to their stockholders, you would almost feel sorry for them.
How much cover to buy
The insurance industry funds a number of different “independent” organizations that collect data and analyze them for publication. Think of them as being a type of PR operation, largely promoting the idea of insurance or explaining some of the recent trends. The Insurance Information Institute has recently conducted a survey into how people approach the task of insuring their homes. Sadly, slightly more than half those surveyed believed the proper basis for valuing their home was the resale value. Almost one-third reported reducing the current amount of cover to save money on the monthly premium installments.
This demonstrates a continuing misunderstanding as to the purpose of insuring the home. In fact, the resale price your home would fetch on the open market has nothing to do with this form of insurance. Taking it step by step. You are not insuring the land itself although some policies do include trees and plants growing in your yard. The purpose of the insurance is to give you enough money to repair or, if the damage is substantial, to completely rebuild the home from the ground up. To ensure you have enough cover, you should approach at least two local builders and get formal quotations of the likely cost of a full rebuild. Remember the cost of labor and of all the materials needed to recreate your home has been rising steadily over the last five years. Curiously, the recession has not slowed the rise in costs. This produces the irony that it would often be cheaper to buy a replacement home than to rebuild your original home.