HAVE YOU CHECKED UNDER THE HOOD?
By Richard Kaley, Colony West Insurance Company
Commercial insurance agents and brokers are as important a business relationship as your accountant and attorney. Unfortunately, many small to mid-size companies don't always understand this until there's a problem.
The main reason for this perception problem might be with the term "insurance salesman". It's said that most people fall into the field of insurance rather than actually choose it. It's true that the state requirements and exam to become an insurance agent are profoundly simpler than the State Bar exam or CPA exam. It's also true that agencies very often have sales quotas.
Here's an experiment to find out if you have a hack or a true professional:
Take one of your current insurance policies out of the filing cabinet and read a few portions-photocopy or bookmark for reference. Set a time to meet with the agent. When you meet, ask questions specific to the portions of the policy you read. There's a very good chance the agent won't know what's in the policy they sold you.
This will make it clear you need to work with a professional commercial insurance agent.
It's amazing how many good size businesses are blindly trusting agents who are a "personal friend" or "family member". Alternatively, many business owners don't have any involvement with the insurance agent and delegate their unconcerned clerical staff to "deal with the insurance".
How much of a thrill-seeker and risk taker are you when it comes to your personal assets? Are you going to travel along snow-covered roads without chains or all-wheel drive? Are you ready to push your savings account balance to red and let the steel ball on the roulette wheel decide if the money is doubled or gone in a quick, single event?
If so, don't read any further.
Conscious risk management of your life and business is as important as time management. When it comes to the perils that can drastically alter your quality of life, there are myriad mitigating devices and protocols which prevent and minimize the resulting impact of an unhappy incident. Condoms, firearms, airbags, Kevlar vests, alligator-filled moats, and halitosis can all help protect. Let's focus on business risks and some ideal preventative and restorative measures to properly address them.
How well prepared is your organization to respond to employment-related lawsuits, citations for non-compliance with new regulatory issues, the piercing of the corporate shield leaving personal assets exposed, unionization of your business (small business are prime targets for unions now), a denial of coverage in response to a claim on an insurance policy, an "informal" OSHA or Cal-OSHA hearing, etc. ?
You depend on your written policies and procedures, employees, partners, third-party vendors, and insurance policies to help run the business and deal with the necessary evils that go along with being a stakeholder.
Suggestion #1
Audit all the above underlined components for your company.
Make sure the most concerned, lawsuit-adverse owner, partner, officer is INVOLVED in the process. As mentioned earlier, too often crucial responsibilities are given to employees that don't understand and/or don't care how to integrate all these elements into the business.
Insurance companies change coverage language often and regularly, by endorsement in mi-term of a policy and annually with a new contract. Don't assume a policy contains the same protections just because you renew with the same carrier year after year. Policy language is changed to add coverage based on case law so a carrier offering will be relevant. The wording is also changed to remove or limit coverage if a given insurance company has experienced losses of a specific type that are unfavorable to their bottom line.
How would you react to a denial of a claim to your Employment Practices Liability Insurance policy? Imagine you were served with a lawsuit by an employee who was only at your company for a week and who alleged that the water delivery guy sexually harassed them? You bought the coverage because it was supposed to protect you from lawsuits involving employment-related lawsuits such as discrimination, harassment, unfair hiring practices, wrongful termination, etc. (all excluded on the General Liability policy form in California). Unfortunately, the policy purchased was stripped of third-party coverage, which is what the water guy is to the employer-employee relationship.
Many employers are under the impression that the longer an individual is an employee of the company, the more loyal they are. However, the majority of significant cases of employee embezzlement involve long-term and highly trusted workers. The longer someone is on the job, the more they know the details of how to steal from the company if they want to. Discontent long-term employees that feel slighted also feel entitled to share in the financial success they see the owner(s) enjoying. Also, a long-term employee will recover more in damages if they successfully sue their employer.
This speaks to:
a. Auditing all insurance policies
b. Consistence and diligence in conducting and documenting employee reviews and performance evaluations (opportunities to re-interview staff), and
c. Making certain all human resource and safety documents are current and relevant to the operation i.e. employee handbooks, job descriptions, compensation agreements, Illness Injury Prevention Programs, training programs, etc.
Suggestion #2
Interview all third-party providers of products and services as if they are key employees.
Real property, photocopiers, phone systems, etc. are fairly simple things to distinguish between for value.
Legal, accounting, and insurance work is much more complicated to properly assess for value. For these areas of your business, do you know the right questions to ask to determine if a provider is truly capable of bringing the optimal offering (applied knowledge and skill, efficiency, ethics, current resources, etc.) to the table for you?
Suggestion #3
Utilize proven and reliable sources to investigate all people and companies with which you do business
Comprehensive data on how many insurance agents have their license suspended or revoked in California each year is not made available to the public.
Neither are their available numbers as to how many denied claims there are each year in California.
Insurance companies would obviously not share their information in this regard. The only data would come from incidents where there was intervention requested by the California Department of Insurance.
So due diligence should be exercised by calling references, performing background checks, verifying employment history, number of years in business, etc.
Suggestion #4
Understand how the commercial insurance marketplace works
Many small to mid-size companies (even some larger ones) have the commercial insurance program "bid out" to several agents and/or brokers with varying degrees of frequency. Most often, the process is wasted time and, at best, not properly executed to achieve the best results.
Here's a typical example of this:
An agent brought in a new business prospect to our sales manager's office. The company was a manufacturer of rubber wheels for commercial equipment such as forklifts with $15,000,000 in annual sales. The current liability policy did not include two vital and inexpensive coverages which are very basic parts of any commercial policy: hired/non-owned auto coverage and employee benefits liability. Also the language of the Product Liability portion of the policy excluded claims for exported products - the 30% of the annual revenue of this prospect were from exporting their product to Europe and that exposure wasn't covered. The main concern of the controller for this company was in hiding the annual premium and refusing to disclose other requested underwriting information (he reasoning was that the other agents didn't ask for that information) needed to assess the risk and having as many agents as possible "shop" it. Professional agents don't get involved in this type of process because it can harm the policyholder and is a major potential Professional Liability claim for the agent.
Quite a few businesses may say they've saved significant dollars in a policy year by switching agents and insurance companies through their bidding process. Although the result is typically simply a matter of the marketplace experiencing an overall reduction in premium for the particular coverage placed in that time period. Other times it is a case where the former agent and their respective agency was "asleep at the wheel" or wasn't conscientious in "leaving no stone unturned" when re-marketing a policy; if it was re-marketed prior to renewal at all.
The fact is that if the stakeholder(s) understood how the marketplace works and asked the right questions as indicated in Suggestion #2, they would more than likely saved more money and time WITHOUT having to give up coverage they're not aware their losing.
Suggestion #5
Take this opportunity to upgrade for success
Survival is the name of the game in the current marketplace. Employers of all sizes have more options than in the past 15 years for excellent qualified people to work at their companies due to many layoffs. Also set some time aside to interview business consultants, attorneys, accountants, and insurance brokers to analyze and recalibrate your business for maximum benefit.
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