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 7 Talking points a business owner must consider to better protect their business 

In my time in insurance I have come across few business owners who are happy about their insurance expenses.  Who wants to budget for an intangible product that you may never use?  Whether it is general liability, workers compensation, property, or other coverage this is a common theme I come across daily and usually get three different perspectives. 

Perspective 1:  I have been in business 20 years and never had a loss!  I don’t know why I even need insurance?  

I cringe when I hear this.  Yes, you obviously have good risk controls in place otherwise you probably would have already experienced a loss BUT most underwriters I talk to say that just means you are “due”.  Usually if you have been loss free for that long then your insurance premiums should be minimal in comparison anyway. 

Perspective 2:  I hate insurance companies because I filed a claim and my policy did not cover my loss! 

Every insurance company is going to have subtle differences within their policy and most policies are set up to include a particular coverage for something in one part of the policy but then exclude the same coverage in a different part of the policy.  This is confusing, that is why it is so important to review your policy with your agent so you are informed about the exclusions and there are no surprises.  

Perspective 3:  My insurance policy saved my business.  

It is said that agents make their money when a claim occurs but I tend to believe the opposite.  A good agent will make sure that your business insurance has the coverage YOU need for your particular business so there are not coverage gaps.  This will increase the likelihood that when something happens your business is protected.  This insured views the agent as a resource and not a bill collector. 

No matter what your perspective, I have come up with seven talking points every business owner must consider in order to better protect their company: 

1. Tell your agent what it is that keeps you up at night.  Don’t ever assume your agent knows everything about your business.  The better agents will gather as much information as possible but it always helps if your agent knows where your concerns are so they can protect them.  

Ex. I rely on my servers for my business.  My servers are at a different location and if a fire shuts them down do I have coverage for income I will lose/expenses I will incur?  How much money would your business lose if there were no production for 2 weeks/month/6 months?  Your agent can help protect circumstances like this and other. 

 

1. Full disclosure.  Know that any information you do not disclose can create gaps in coverage.  

Ex. If you keep all your information stored electronically but you agent is not aware you could end up spending thousands of dollars recouping that information if it is lost due to a covered peril when you could have added that coverage to your policy.  

1. Interview your agent.

I understand price is important in our current financial atmosphere but when it comes to protecting your livelihood it is worth dealing with someone who can make appropriate recommendations and not just get you a cheap price.  Hopefully you can find one that can do both!! 

Ex.  Insured pays 25% less for a policy to insure their building.  After closer review the policy had an 80% co-insurance and was underinsured.  Once the penalty was applied for underinsuring (yes, companies will do this) the business owner would receive $130,000 for a $1,600,000 building in case of a total loss.  This was a real life scenario. 

1. Ask questions.

Two positives come out of this.  First, you will be informed and feel comfortable with your policy.  Second, it will create an open dialogue, which could result in different insurance strategies for your business.  

Ex.  I have a high turn over, will my insurance rates go up if my employees are constantly changing?  Knowing this information an agent can recommend Employment Practice Liability Insurance in order to add coverage for a wrongful termination claim.  

1. If it takes more than a day to get response from your agent, fire him/her!!

More often then not I hear this comment “I can never get a hold of my agent”.  Whooooop!!!  That is music to my ears because that is the easiest thing an agent can do.  Our standard operating procedure is same day response, ask your agent what their standard operating procedures are and hold him/her to it.  If they put their cell phone on their card they usually mean business. 

1. Make sure your agent goes over the policy with you.

You need to know what is protected and what is not protected.  From time to time when I go through this step with my clients we find coverage endorsements to add/remove.  You always want to catch these before you have a claim. 

1. Lastly, I recommend you work with an independent agent. 

I will be the first to tell you this is an extremely bias opinion coming from me.  I am an independent agent.  Here is why I say this though.  If you work with a captive agent (farmer, state farm, ect.) they will only be able to provide one policy form at one price, a lot of time the coverage forms will not cater to your needs.  An independent agent will have a multitude of companies he/she is contracted with in order to provide the best coverage and most affordable price in the market place.  

Bonus note:  Ask your agent about additional insured and waiver of subrogation.  Transfer of risk is vital for companies who deal with other business operations, make sure you are not on the wrong end!

 

What does a “soft” insurance market mean to business owners? 

In the last few years there has been a lot of talk in the insurance industry about “soft” markets.  When is the soft market going to end?  Will it continue to stay soft this year?  How has the soft market affected your company?  There has been a lot of buzz in regards to the soft market and there is good reason to keep tabs.  

How does a soft market affect my company?  Depends on the operation but generally speaking a soft market can provide opportunity for more competitive prices.  A soft insurance market means that premiums are down, insurance profits are low, and competition is high.  All these things create an environment where the business owner can benefit. 

 How long has it been since you have had your insurance agent shop your products for you?  If it has been over a couple years then it is time to make that call to your agent (or me, ha!) and have him take your account to market.  In a soft market competition is high.  Insurance companies try and make profit based on writing more accounts not charging higher premiums.  What this does is force insurance companies to write business classes they never have before and reduce premiums to compete.  All this happens constantly so for example if Insurance Company A has never written medical facilities in the past that is not to say they will not consider it today or maybe next week.  That is why it is important to get your insurance agent to shop the markets for you to see if you are indeed getting the best product for their company at the best price.  A lot can change in a soft market in two years so if your rate was not competitive with The Hartford two year ago that does not mean they won’t be able to compete now. 

 How long will the soft insurance market last?  If I knew that I would not be writing this blog but rather eating grapes somewhere off the coast of Costa Rica.  Typically a wide scale catastrophe will trigger the market to turn hard.  Underwriters usually raise their standards, increase premium, and loosen competition.  During this period insurance companies have a higher profit margin and business owners end up paying more for their insurance. 

 The one take away from this article is to get your insurance shopped today because there is savings to be had and right now insurance companies want business which means lower premiums.  Happy hunting!!

 

The Business Owner Policy 

There are so many different types of insurance coverage that a business owner must consider.  A fundamental truth in the insurance business is there is no such thing as an all-inclusive policy.  What I mean is that every policy is going to have exclusions which can create coverage gaps.  One of the most obvious examples of this is the “Pollution Exclusion” on general liability policies.  I imagine majority of business owner don’t even know this exclusion exists and what is worse is there is a percentage of insurance agents who don’t know about this exclusion either.  The pollution exclusion basically states that the insurance company will not cover any losses that involve foreign solid, liquid, or gas.  So if a painter has a 5 gallon bucket of paint that spills in a sewer drain he will have zero coverage for the clean up cost and any suits for contaminated property.  Most people would assume the General Liability policy would pick this up.  

All that being said the insurance companies developed a neat insurance product that addresses a lot of coverage gaps in your basic policy.  This policy is called a business owner policy (BOP).  A BOP was created to give the small business owner a product that address a lot of coverage gaps that would normally have to be address with separate policies.  This allows the small business owner to save from having to buy 5 different policies.  Now they can get a BOP which is affordable and offers extra coverage.  Hang with me and I will show you how it is different.  Two things to note: First, each insurance company is going to have a slightly different BOP so what one company may cover another might not.  Second, even though you are given some coverage for certain things it still might not be enough for your business operation.  So what is the difference?

Below is a comparison of the # of policies you would need to get specific coverage.  You will see that you only need 1 policy with the BOP.

 

Basic Policy                                                                            BOP

Commercial General Liability Policy                          Covers General Liability

Property Policy                                                                    Covers Property

Employment Practice Liability Policy                        Covers EPLI  

Business Income/Extra Expense Must be endorsed    Covers BI/EE 

 So with the BOP you can have one insurance policy that covers the four areas above.  Talk to your insurance agent or me and get information on all the additional coverage you could benefit from with a Business Owner Policy.         

 

Is he an employee or an independent contractor?

  I am a generalist in the sense that I write insurance for all types of industries.  Some agents focus on one group and some attack like a scatter gun.  I enjoy dealing with different types of business operations.  There is a universal theme though…How can I save money?  Good business people should ask this question.  One way to do this is by the classification of your employee.  There are legitimate operations that use independent contractors so they don’t have to pay for taxes and insurance on the employees.  Makes sense if that is truly what is going on.  I am going to talk about a few different scenarios I have come across in insurance.

 First:

I have a great friend who is a General Contractor in Austin, Tx.  He does finish out work for retail and office occupancy.  New tenant moves into a shopping center and needs to remodel the inside space, this is your guy.  He is a one man shop.  He sub contracts all his labor.  He has a bunch of different contractors he uses when he works a job.  All these contactors are insured.  So they are truly independent contractors.  His insurance requires that all his sub contractors carry insurance and they do SO his insurance costs are significantly less.  This is a perfectly acceptable way to operate. 

Second:

I am working with a commercial janitorial company.  They do $800,000 in sales a year and state their payroll is $12,000 annually.  This will raise a plethora of red flags at audit.  So right now they pay next to nothing for General Liability and Workers Compensation.  Both the GL and work comp base a portion of the exposure/premium on annual payroll.  The company has $350,000 in “independent contractor” costs.  These employees work for them and can be hired/fired by them.  They do not carry their own insurance and have to answer to the company.  They only work for this company.  Does this sound like an employee or independent contractor?  

Here is the risk.  If you try and do what the commercial janitorial company is doing then you are setting yourself up for a huge audit.  Along with the audit you will be misleading your clients when you submit a Certificate of Insurance that states you carry GL and work comp because the reality is that the people working for you are not insured.  You are not classifying them as an employee so they do not fall under your policy but they do not carry their own insurance policy either.  There may be exceptions but let me tell you a real life audit nightmare. 

A plastering company classifies all their workers as independent contractors.  They pay $1,500 in work comp premium annually.  That is a great price!!  Their premium is based on their payroll which is next to nothing since they “1099” all their workers.  At the end of the year the Insurance Company does their annual audit.  They determine that all contractor cost $400,000 should actually be classified as payroll.  This company was hit with an $18,000 audit at the end of the year that they owed to the insurance company.  What makes it worse is that once the insurance company notifies you of additional premium owed they usually give you 60 days to pay.  For a lot of companies they don’t have that kind of cash flow to write that check.  If this was done appropriately then they premium payment would have been spread through out the year.  

I think most business know how to best classify their workers but I have come across this issue more frequently in the last year so I thought I would share my two cents.  Make sure to consult your CPA or insurance agent about these concerns and as always please contact me with any questions. 

 

The importance in Employment Practice Liability Insurance- EPLI.

 The business environment has become increasing unpredictable.  It seems there is a lot less loyalty between employers and employees.  This exposure leaves the door open for wrongful termination suits.  As a business owner you are at risk no matter what your business practice.  I know a lot of companies have specific ways to hire and fire employees and it is written in procedure.  This is a great risk control to have it place but it is important to think about other ways to protect your assets (business).  

Employment Practice Liability Insurance (EPLI) is one way to do that.  EPLI is going to provide coverage for companies against lawsuits or claims filed by an employee, former employee, or employment candidate.  EPLI typically insures against claims of discrimination (age, sex, race, religion, color, and nationality), sexual harassment claims, wrongful termination, emotional distress, breach of contract, among others.  These type of claims can be expensive and there is typically not coverage for this on any other policy form except EPLI.  

The company can either obtain a separate insurance policy for EPLI or obtain a Business Owner Policy that offers this coverage.  Usually a Business Owner Policy will have small limits.  An average coverage amount on a business owner policy is around $25,000.  Although this is a nice amount to get if a claim is made it is typically not enough.  Most stand-alone EPLI policies offer $1,000,000 in coverage.  So depending on the amount of exposure you feel your company has you can decide which route is best for you.  As always please consult an insurance professional for advice on this and many more insurance coverage.