As a pet peeve of mine I love to check the size of the product containers I buy. Yeah baby living the dream, what can I say. To wit, Tropicana recently reduced the size the of their one gallon jug of orange juice to 59.5 ounces, down from  64 ounces. Yet they maintained the same cost structure for less product, increasing their profit margin by 8%. The best part is only a very small minority of dweebs noticed. I’ll call this technique profit stealth.

For those of you still awake after my riveting first paragraph, let me segway this into the insurance world. I have maintained for years that insurance carriers have gotten very smart , which was the initial motivating factor for me to start insurance mic. The insurance companies have figured out that neither the businesses that purchase insurance, nor the NY  Insurance Brokers , NJ Insurance Brokers / Westchester NY Insurance Brokers that sell the policies actually read what they are selling. Certainly I am broad brushing here as there are plenty of Westchester  NY insurance brokers /Hudson NJ Insurance Brokers that use caution and care placing the broadest possible coverage over top the business risk; however sadly the vast majority don’t. The insurance companies know this, which is why they insert language in their contracts that in essence reduce the size of the juice jug, by reducing coverage, thereby the business buying the policy transfers less risk to the carrier, for the same premium dollars. Brilliant, for them, you, not so much. Hopefully if I write enough of these articles that will change.

I have a zillion examples, like policies covering a residential general contractor that excludes, condominiums, town homes, e.t.c. . “I build apartments, not condo’s” . Yes , so what you are saying is you don’t need products and completed operations coverage for the 20 condo buildings you built over the last 10 years huh? Oh , you might want to check the “definitions” section of the policy you just bought where they define “residential construction” to include ANY multi unit, multi family building. I hope your policy covers the retainer your going to have to part with to force coverage from the carrier you just partnered with. I could blow out my keyboard with examples just like this one.

What’s so difficult to impart to clients, and potential clients that just look at the premium two insurance carriers are charging is the cost of just making your buying decision on price. Too often clients don’t understand the premium is so much less because they are retaining much more of the risk on their balance sheets. Insurance quite simply is a mechanism to finance a loss, if you loss the ability to finance a broader range of losses than it’s ultimately you that retains the risk and  has to pay, usually big wiping out 10 years of premium savings.

I wrote an interesting article for another Blog I run that just focuses on Construction Company Risk awhile back called Insurance Mic that trys to explain how to calculate the cost of an insurance purchase, rather than looking purely at the premium. To understand more about this read :The Cold Hard Realities of the Soft Insurance Marketplace.

Here’s my entire salient point .Please be careful about the insurance contract you purchase, the containers are getting smaller and no one is paying attention. If you are purchasing NY Commercial General Liability Insurance , NJ Commercial General Liability Insurance , NY Workers Compensation Insurance, NJ Workers Compensation Insurance please ask for a sample policy that includes all of the forms and endorsements proposed to you. Have someone with a particular level of expertise read the policy and ask questions before you buy. You have all the leverage prior to binding the insurance, and none once you committed for the year. Give your broker copies of leases and contracts you sign which encumber certain financial obligations upon your business. Ask your insurance broker which contract clauses or obligations the insurance WON’T respond to rather than the ones t won’t. That’s a trap question for the broker and carrier by the way.  Asking questions about how certain claims scenarios would be treated prior to the loss is GREAT WISDOM, because it’s actionable. After you receive the phone call from your Project Manager about an accident or event is very difficult to manage as the die has already been cast.

Questions, comments about your policy, please call us as we will be happy to engage in a thoughtful debate about how and if your potential for loss is financed by insurance or your checking account. Click for a free consultation on business insurance today.

A glove manufacturer based in Arkansas that sold defective fire resistant gloves to the New York City Fire Department has shuttered it’s doors. I highlight this piece of news as this is the ultimate NET INCOME LOSS. Had they used the time tested tools of risk management, this situation could have almost certainly been avoided. According to a New York Times Article the problem stemmed from switching an interior lining material that had passed all of the qualifying tests, for an inferior material that resulted in firemen in New York City receiving burns on their hands that should have been afforded protection by these “state of the art gloves”. Check out this link on the New York City fire Departments web site touting the new gloves! Fire Fighters Get New Blaze Fighter Gloves

In situations like this you most certainly can’t buy enough insurance. Any limit you purchase would be near exhaustion if you sold enough product.Once more the renewal premium may be too high for them to absorb driving their fixed and variable cost structure beyond the competitive threshold. A  critical point is that most of the Net Income Loss experienced by a situation like this would not be covered by insurance, but absorbed by the business. Loss of goodwill, the effort to institute a sizeable product recall, the diverting of critical cash flow and resources such as employee effort to deal with this mistake is not covered by insurance. That kind of productivity loss, sales, marketing PR e.t.c. sits on your profit & loss statement impacting not just your short term results but ultimately the viability of your company.

Had there been a protocol in place that would have put each component of the glove through rigorous product testing before a decision is made to abruptly change course, the probability of this type of event would be greatly reduced. Beyond product compliance, design, and testing purchasing product from a large manufacturer with significant resources to back the performance of their product component is usually a great strategy as it would have enabled this glove manufacture to pass a great deal of this risk, and loss from their balance sheet to that of their vendors. Too often in the unyielding quest to drive down product costs I see companies choose the ‘Cheapest” product, which ultimately results in a much higher cost throughout the lifetime of the business relationship. I see this often as I watch C.F.O.’s  and small business owners buying patterns as it relates to insurance. They unwittingly jump at the lowest quoted premium rather than fully evaluating how much risk they are retaining , versus how much they are transferring, and at what potential cost. Risk should be the most important component variable and not insurance premium. Ultimately C.F.O.’s , small business owners and sadly many of the brokers that place NY & NJ Commercial General Liability Insurance  only know how to evaluate the proposal based upon premium. It’s a much easier variable to quantify which is why so many mistakes are made. 

Don’t goes toes up like the The Glove Corporation . Stop buying insurance, and hire a Risk Advisor. Your business life may depend on it!!

Finally after years of wrangling and negotiating, the Bloomberg Administration is done talking and is taking action relating to the 62 acre Willets Point site in Queens, adjacent to Citi Field. The site, has long been a festering eyesore , which is hard to do when you sit across from Shea Stadium now appears set to get a makeover. With the stewardship of Claire Shulman , ex Queens Borough President , and Vincent Riso , the esteemed leader of The Briarwood Organization, it appears a new long awaited chapter begins in an area long blighted by more than an underperforming, overpaid National League Baseball team. 

According to City Officials the Eminent Domain process will begin on the first 20 acre parcel next week. This spring the city will begin to solicit bids from Developers.