We hear misconceptions every day regarding commercial insurance. It’s no one’s fault really as commercial insurance can be extremely complex, and organizations with complex insurance are truly underserved by the insurance community. We’ve been taking note of the most common myths we’ve heard this month and included them below. We will continue to add to this list every month.
1. “The proposal with the lowest premium is best.” (Price vs. Cost)
I don’t know if this one really needs much explanation. Premiums are determined by a combination of risk profile, exposures, coverage, contract terms, and your company’s individual loss history. It’s quite common that your upfront “price” for the insurance may be quite low, however (1) uncovered claim can and will drive your ultimate cost significantly higher than perhaps other insurance proposals you may have evaluated but did not choose because the price / premium was too high. Value buyers evaluate insurance by how much risk is transferred for what premium. Price buyers simply jump at the lower premium selectively listening to the broker who presents them that option instead of evaluating the coverage terms first.
2. “I should shop my insurance every year.”
Not true because carriers will flag this. It makes you less attractive to the marketplace because they know they are likely to lose you as an account the following year. They hate price shoppers and look for value buyers. It takes the carrier time to underwrite and price your account. Often the first thing they evaluate is, “Do we want to work on this quote?” If they see you were with your prior carriers for a year or two before you jumped ship they know they are renting your account and they will pass. Think of a job applicant who has had ten different jobs in the last ten years. I’m sure you would have some hesitations about his/her loyalty to your company.
3. “I should have multiple brokers, or at least shop my insurance to multiple brokers because they will keep each-other competitive.”
Having two(or more) brokers duplicates effort on your part and can create coverage gaps and a lot of noise as you try to evaluate your options. It’s better to have one partner you can trust manage the majority of your policies. Select your broker based upon their background, experience in your field, and the additional resources and capabilities that they can leverage to lower your costs. If you want to bring in other “broker voices/representation” we suggest that you ask yourself what your ultimate goal is. If it’s simply a lower premium your current broker typically can get the same quotes as the competing broker. Carriers rarely if ever play favorites as they are trying to make money not friends. If your goal is that you may have outgrown your present broker as you have operational challenges that they are not partnering with you to help you in your challenge then we believe this is wise to bring other brokers in to evaluate your situation. We call this a “Request for Services” bid. Put out an RFP that speaks to your individual challenge and ask for responses. As an example, a company might be challenged with work place injuries which is driving their workers compensation insurance costs higher. Shopping the insurance through four other brokers will not solve for this. You will get an outcome here but not a result. Hiring a broker who has the unique capabilities to solve for this challenge will yield a result.
4. “People get hurt at work; there’s nothing I can do.”
There’s a whole lot of science out there debunking this myth. But we still hear this one all the time. Can you 100% eliminate injuries? No! Can you have a substantial impact on the number, severity, and impact of your claims? 100%. Too often we see companies managing to the exception rather than the rule. They have (1) outlier event and figure they can never affect their workers compensation costs.
The most cost efficient, highly competitive, and successful companies have a full on employee injury / workers comp cost containment program in place which gives them a substantial competitive advantage in their unit cost structure which is a large part of why they are successful in the first place. Poor performers throw up their hands and say,”What can I do? It is what it is!” We think that’s a shame.
5. “All I can do is wait four years for those claims to disappear.”
There’s A LOT you can do. Workers Compensation is so rich in opportunity if you know where to look and have the correct partners as no one is paying attention. Verify your audits are correct. Verify your experience rating is correct. Are your claims reserves being monitored closely? Are you taking advantage of all your subrogation opportunities? Finally look into various loss control methods to make sure it doesn’t happen again. Nothing worse than bailing water only to turn around and find it pouring in faster than you are ridding the skif.
6. “I collect certificates of insurance from all my subs, we’re good!”
Certificates of Insurance do not confer coverage, only insurance policies do. Without reading a sub contractor’s insurance policy you have absolutely no idea what coverage if any will be afforded to your project. Yes they signed your sub contract which stipulates what coverage you require and includes a hold harmless. That only creates the obligation, it does not finance it. IF the sub’s insurance doesn’t kick in and finance the loss yours will. The impact will be felt when you go to renew your insurance as your rates will increase by potentially 300% each year for 4 years. Let us repeat : if the sub’s policy will not pick up coverage during an event, then it falls to your insurance policy, having a potential significant impact on your future insurance costs, net income loss, and ultimately your firm’s profitability.
Plenty more myths coming next month! In the mean time, if you’d like to speak to a Risk Advisor give us a call at 914-357-8444.