Ultimate Guide to Buying the Right Comprehensive Business Insurance (and Saving Money)
When you are growing a business, there are a lot of risks involved. Shopping all lines of comprehensive business insurance is complicated. Your business has plenty of risks in need of protection, but if you’re like most people, you’re not sure if your coverage is adequate. You’re also not sure if you’re overpaying. Finally, you know there are operational and risk management strategies you can implement that will reduce your costs, but you don’t have the time or expertise to get started.
Does any of this sound familiar? If so, then keep reading…..
Business Insurance is Complicated
Insurance policies are written by lawyers and are therefore difficult to understand. Also, each company has unique exclusions and coverage limitations. For example, did you know there are multiple types of additional insured endorsements? The number of coverage traps and details can make your head spin. Therefore, asking your vendor (which your lawyer or insurance carrier required you to do) to name you as additional insured may not protect your business if your client chooses the wrong endorsement.
Below are a list of most common causes of coverage gaps due to variables with insurance policy coverage.
Exclusions & Limitations of Insurance Coverage
Common exclusions or limitations within Commercial Property Insurance:
- Ordinance or Law coverage
- Pollution limitations/exclusions
- Under valuation of limits (coinsurance penalty)
- Protective Safeguards and “Warranties” which restrict coverage
- Electronic Data coverage
- Employee Theft
- Cyber Theft
- Flood and Earthquake
- Debris Removal (limitations)
Common exclusions or limitations within Commercial General Liability Insurance:
- Mis-classification of risk (may lead to claim denials)
- Contractual Liability limitations
- Warranties which restrict coverage
- Pollution liability
- Leased workers (creating coverage problems, if not addressed)
- Employment Practices liability
- Directors & Officers liability
- Professional liability (E&O)
- Garage liability
- Cyber liability
If you are like most people who don’t have time to read the “fine print” for every possible quote, then you trust your agent to provide the best coverage options. This is a solid plan, but ONLY if your agent has the right expertise and systems in place. An agent’s job is to properly evaluate your company’s key exposures and determine adequate coverage and cost reduction opportunities. At Shields Insurance, we follow a three-step process to ensure our client obtain the best possible coverage at competitive rates.
Selecting the Right Insurance Carrier
When selecting an insurance carrier for comprehensive business insurance there are a few basic guidelines to follow. Of course, you want your insurance carrier to be financially strong. There are several reasons and the most obvious is that you want them to pay your claims. Also, there are “soft” consequences to a financially weak carrier. It may also cause them to be under-staffed in many areas of the company, leading to poor service on all levels.
Secondly, you want a carrier with a reputable claims paying history. This is where your agent will have to provide you with their opinion. Unfortunately, references and testimony from your agent are the primary ways of determining a carriers reputation when paying claims. You may also want to run some google searches. If the carrier has a bad reputation, you may be able to discover it this way.
WARNING: Almost every insurance carrier will have bad claims reviews. As you know, they do have exclusions and limitations, but people are not happy when their claim is denied.
In summary, the two basic guidelines to follow for selecting a good insurance carrier are:
- Financially strong
- Reputable claims service
Some of our top insurance carriers are The Hartford, Travelers, Liberty Mutual, Attune, Met Life and Safeco. We do not work with anyone that’s not reputable and financially sound.
Why Shopping Agents May Not Work
Many businesses believe they can engage multiple agents to shop the market and this will ensure they obtain the best possible rates. This process can work, but only if you maintain vigorous control over the market.
Selecting ONE Independent Insurance Agent to shop the market will maximize your savings and coverage availability, in many circumstances. (Please note this only applies if you choose an independent agent with a large number of partner carriers to shop)
The reason for this is due to the fact that many Property & Casualty carriers will only release quotes to one agent. Therefore, if one agent quotes the best property rates, but another quotes the best liability rates, then you are going to over pay for coverage. In this scenario, you would have benefited most if one trustworthy agent had access to the entire market. This is the best approach for shopping comprehensive business insurance policies in almost all circumstances.
For more information on shopping insurance to maximize your results, check out these other articles:
Wrong Coverage at High Prices
Unfortunately, in our experience working with hundreds of businesses, most are buying the wrong coverage and paying too much. A well-intention agent is a great start, but as mentioned, if they don’t have a process for evaluating your unique exposures, this will not be enough.
So, how can you be sure you’re purchasing the right insurance policies and structuring them correctly? How can you know if you’re wasting money on coverage you don’t need or over paying for certain policies? These questions, faced by almost every business, led us to create a system that simplifies the shopping and buying experience.
The 3-Step Process to Ultimate Protection and Savings
This is a lot of information and you don’t have time to become an insurance expert – I get that. Hence, our process is built on sound principles which are easy for a layman (or laywoman) to follow. Its what every agent should do.
The three steps:
- Evaluate Your Exposures
- Apply for Insurance Coverage
- Start Coverage (with ongoing exposure reviews)
Below is an outline to follow when you start evaluating your comprehensive business insurance needs. Follow this outline and we guarantee you will be optimally protected and get the best possible rates for each coverage you buy. It’s based off our system and gives you lots of practical knowledge nuggets and tools you can put to use immediately.
The first step to shopping for comprehensive business insurance is to accurately identify your organization’s unique key exposures. Many people believe they understand their biggest risks, but when following a frame work to evaluate, you may be surprised by your discoveries.
The framework to identify your exposures is based on four pillars of risk management:
- Key Persons
- Net Income
The simplest way to follow this process is to write down every major risk factor faced by your company in each of the major four pillars. You can write down a grid and brain storm with other members of your team or with your agent.
As an example, we will evaluate the key exposures of a franchised restaurant below.
- Water Damage
- Auto Accidents
- Employee theft
- Slip & Fall from customers
- Food borne illness
- Liquor liability
- Auto accidents (damage to other vehicles or persons)
- Work-related injuries to employees
- Employee lawsuits
- Employee or Management turnover
- Disability or Death of key employee or owner
- Lost income caused a property or liability exposure
- Vendors being unable to provide food or supplies
- Public Relations problems (e.g. like the ones faced by Chipotle)
Once you understand your company’s key exposures, the next step is to determine the right insurance coverage. Only now can you avoid buying the wrong coverage. In order to perform this step, it’s important that you know how to read property/casualty insurance policies – read How to Easily Read Your Insurance Policies and Discover Coverage Gaps.
We reviewed a few Property and General Liability coverage limitations and exclusions previously. Review the Commercial Insurance Solutions page to see a full list of the main types of insurance and each link contains a description. Reviewing what each type of policy covers is a great start. These are pretty easy to read and give you a 10,000 foot overview.
Of course, as you’ve seen earlier in this article, buying the right type of insurance policy doesn’t guarantee you have the right coverage within that policy. It’s important to fully disclose all facets of your operation to your agent.
The most common types of insurance coverage (listed on the Commercial Insurance Solutions page) available are:
- Commercial Property
- Commercial General Liability
- Business Owners Policy (BOP)
- Business Auto
- Workers Compensation
- Professional Liability (E&O)
- Employment Practices Liability
- Directors & Officers Liability (D&O)
- Fiduciary Liability
- Garage Liability (primarily for auto services businesses)
- Commercial Crime
- Commercial Umbrella
- Surety Bonds
The final step is to start coverage. This is not a “set you up and forget you” step though. Our agency will continually monitor your needs with regular exposure and coverage reviews to ensure you are optimally protected and getting the best rates.
Additionally, it’s important that you maintain sound risk management strategies within your business and seek to improve in these areas. This will keep your insurance rates as low as possible and avoid disruption to your normal operations. This leads to a short discussion about cost reduction, which is something every business owner cares about!
When it comes to comprehensive business insurance, there are a number of cost reduction strategies available. There are two types of cost reduction strategies: 1) Short Term and 2) Long Term. The same as true in all aspects of life, the long term strategies will provide the greatest impact over time. The best thing about long term strategies is that they are the same principles used to build world class companies. You are probably already implementing many of these tactics in your business today.
Cost Reduction Strategies for Comprehensive Business Insurance
The most effective short term cost reduction strategies are as follows:
- Shopping the market with ONE independent agent (preferably, one with a large number of partner carriers, but that may vary depending on what type of industry you’re in and the availability of markets for your risks)
- Reviewing available classifications for your General Liability and Work Comp
- Maximizing carrier discounts (loss control, bundling lines of business, etc.)
- Review your Experience Mod Worksheet to ensure it’s being accurately calculated
- Review your claims reports to ensure they’re being handled well and not being over-reserved
- Install burglar/fire alarms for new discounts
- If you’re constructing or renovating, implement features that are favorable to insurers (ask your agent for input)
The most effective long term cost reduction strategies are based on sound risk management and are as follows:
- Quality Control throughout your business
- Create a Safety Culture and implement an effective safety program throughout entire business
- Create a “Return to Work” program for injured workers
- Incorporate safety and risk management within your employee training
- Develop Job Hazard Descriptions within each of your job descriptions and discuss these hazards with pre-hires and post-hires
- Implement precautions to avoid liability claims (e.g. wet floor signs, warning labels, cover letters, etc.)
- Driver safety training and strict rules for driving history
- Implement a “drug free” policy in your business
- Create a Business Continuity Plan