June 29th, 2020
Purchasing commercial insurance is nothing like insuring your personal home or vehicle. Many businesses think they can give their agent or broker some information and receive a business insurance and bond quote within the same day. While this can be true for small, very low-risk businesses, this is not the case the majority of the time.
Commercial insurance is very complex and has a variety of coverages and options to choose from. Oftentimes, commercial insurance companies create their own policy forms, which means they have to be checked for coverage gaps.
Additionally, unlike a standard personal policy, each business is very unique in the products they sell and the services they offer. This means they require more underwriting.
But obtaining the coverage you need can be easy if you know the steps involved and you have a plan in place. Here is how to get bonded and insured:
The number one piece of advice we can provide is to find an insurance broker to work on your behalf. Most insurance brokers commonly have the same insurance carriers, meaning if you approach multiple agents for a quote, they are often talking to the same underwriters.
This can hurt you in a couple of ways:
First, insurance companies will only accept a quote submission from the first insurance agent that sends it to them (we call this "blocking the market"). This creates a situation where multiple agents have "reserved" markets that other agents can't offer a quote for.
For the majority of business insurance buyers, insurance programs utilize multiple insurance carriers to optimize both pricing and coverage. For example, your general liability might be with CNA, the property with Chubb, and the workers compensation with Accident Fund. If only six insurance carriers will quote your business, and three agents each have two markets, do you think you will get the most optimized coverage possible?
Second, when you have three quotes from three different insurance agents, what are your criteria for determining which proposal offers you the best value? Each agent will present the best of what they were able to find with the insurance carriers they submitted to first. What is the tiebreaker? Most of the time, we see this leading to a situation where business owners will go with the lowest price – even if the quote is a terrible value.
That being said, if you are an insurance expert or a risk manager at a large company, you might know enough about commercial insurance to make an educated decision on the best insurance program.
Third, underwriters at insurance companies are often assigned to industry segments in specific geographic territories. This means that not only are the insurance brokers you are working with submitting to the same insurance carriers, they’re frequently submitting to the same underwriter.
When an underwriter sees multiple submissions from multiple agents, they view it as a less favorable opportunity, especially if this happens often.
Underwriters generally look to keep clients for a minimum of three years to spread the risk over time. When they see the same customer always getting quotes from different brokers, they do not believe they will retain the policy. Whether it is factual or not, underwriters view this type of bidding as a negative risk characteristic.
This is magnified when the information each agent submits differs in any way. If there are inconsistencies in the applications among different agents, it might cause a trust issue with the underwriter, leading to an unfavorable quote.
Additionally, we see that underwriters are less excited to compete for your business if they are quoted often and a policy is never taken.
That being said, underwriters do not mind if you are looking at another insurance broker instead of your current provider. They want to see a potential partnership with you, an insurance broker, and the insurance company, not a bidding war every year.
We recommend limiting your quoting to two agents. If you feel compelled to talk to more, we suggest reserving insurance carriers to specific brokers to avoid these issues.
Ultimately, we suggest finding an agent that you trust; someone who will work hard to manage your quotes and find the best value the insurance market has to offer. This takes less work on your part and generally leads to better results over the long term.
After choosing an insurance broker to work with, sit down and really consider your potential business risks. Ask yourself, "What are three worst-case scenarios that could happen to my business?"
When you have those scenarios in mind, ask your insurance broker what coverages are available to cover them. They might be included on a standard general liability policy, but they might not. This is a good time to get peace of mind for your insurance program and the future of your business.
Each industry faces different requirements from their state and regulatory agencies. For example, in Oklahoma, certain construction businesses have to comply with the Oklahoma Construction Industries Board to get licensed to do business.
Additionally, you might have a particularly large client with strict insurance and bonding requirements you must meet to continue working for them.
Collect all this information and create a list of all the coverages you need to continue doing business (or the business you aspire to do). This will make your life easier when it comes to winning jobs and issuing certificates of insurance.
The list you compiled is called your requirement sheet, and it’s what you reference when determining what kind of coverages you need. Once you have your requirement sheet ready, we suggest creating a narrative page that details each aspect of your operation, what you sell, the composition of your sales, how your product is made, and so on.
We also suggest that you include pictures and details about any large buildings or expensive equipment that you own.
The current insurance market is going through a "hardening cycle," which means rates are going up and coverages are being limited. You can combat much of this by providing as many details as possible to showcase your business in the best light.
If an underwriter has any substantial credit available, they frequently have to justify why your business would be a better "risk" to take than others in the same industry classification. As someone trying to get the best deal, you should make this as easy as possible for them.
Once your broker knows more about you and the operations of your business, you need to start filling out forms regarding the information most pressing to underwriters.
For example, if you are a manufacturing business, the underwriters will want to know about the type of products you manufacture, how they are used, if you have any lockout/tagout procedures, client contracts, and so on.
Detailed information is king. If you provide a completed supplemental form, the chances of you getting a quality insurance quote increase greatly.
Quality work takes time in commercial insurance. The larger and more complex your business is, the longer it takes to provide quality insurance terms and pricing.
For example, if you have a business with over 100 locations and very diversified operations, it can take up to three months to get a quality program put together. This is especially true if you need high limits of liability or property, as your insurance broker might have to create a "tower" of coverage. This means multiple insurance carriers will have to split up the risk for a single coverage.
This takes a lot of time to put together.
Smaller businesses are not off the hook; they can also take some time. Although most do not take three months, it is often a good idea to start at least one month in advance.
This gives your insurance broker time to negotiate with multiple insurance carriers instead of offering the first available quote to you.
Once your insurance broker has submitted your information to various insurance companies and you have received a quote, it is time to compare these quotes to the requirement sheet you created earlier in the process.
Whether it be limits of $10,000,000 or an errors and omissions policy, now is the time to confirm that you have lined out all the coverages you will need for the upcoming year.
Ask your insurance broker to go over your requirements and show you in the policy where each line item requirement will be satisfied. You might even go to your most insurance-conscious clients and ask for a sample certificate.
You can then ask your insurance broker whether the proposed policy could comply with the sample certificate your client provided. If not, it is better to know now and figure out any shortcomings than to find out when you are unable to start work.
There is no shortage of options when it comes to choosing an insurance carrier. However, it’s important to understand they do not all behave the same way.
Each insurance company has a different philosophy on claims handling and coverage. Some plan to exclude the most severe risks a business will face. They may even fight legitimate claims to avoid paying.
Additionally, some insurance companies include a great deal of coverage and will often pay for claims that weren't clearly covered.
Statistically, there is no way the quality insurance companies can maintain the same rates as the insurance company that excludes and fights every claim possible. Quality insurance pays for more claims – and frequently pays more for each claim than a comparable lower-quality insurance company.
Have a firm grasp on which insurance carrier you are signing up for. A quality insurance company is rarely the cheapest (though sometimes it is), but it should also not be absurdly expensive. When finding the right insurance program, your goal is to find a quality insurance company and a competitive price. That doesn’t necessarily mean the lowest price.
Knowing your business has the best chance of surviving a catastrophic accident is often worth a 5 percent increase in premium.
Getting bonded and insured isn't difficult, but you need to approach the process with specific goals in mind and a knowledge of how the insurance marketplace works. Most of the time, the traditional method of "go out for multiple bids" will not produce a favorable result.
Having a relationship with an insurance broker that you trust to act in your best interest will lead to the best deal most of the time. If you are unhappy with your insurance program, we would suggest evaluating the agent instead of the bids that are available from other brokers.
Additionally, if you are looking to partner with an insurance broker, schedule a time to meet with one of our risk advisors.
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