Our helpful guide features our top 10 ways to minimize the cost of your insurance premium by presenting some of the most common questions that insurers ask when determining your business coverage.
1. Be the object of desire of insurers.
The most important thing a business can do to negotiate a better than average renewal is to be looked upon as a profitable account to an insurance underwriter. Insurers are not unlike other businesses in that they are in business to make a profit. Insurers today are looking for ways to add potentially profitable accounts and to get rid of historically unprofitable types of business or individual accounts that have had poor claims experience. Loss control and claims personnel generally report information to the underwriter who is the central decision maker on whether an account will be written, renewed, or cancelled and whether any credits will applied to the rates. Some of the things underwriters look for today in determining whether an account is a favorable account is the following:
- What is the loss history of the account?
Insurers typically want to see loss runs showing all claims for the past five years. It is important, therefore, that the loss runs do not include any inaccurate information. For example, reserves, which are estimates placed on claims by insurers, can adversely affect the ratio of losses to premiums. These reserves can sometimes be lowered or removed yet some loss runs do not correctly list such reserves.
Avoid submitting small claims to your insurance company even if they are above your deductible. A frequency of small claims in your loss history raises red flags with insurers.
- What is the physical make-up of the business including the office and warehouse?
Loss control representatives will likely visit your business to review your exposures and to decide whether to make a positive or negative recommendation to the underwriter who may be quoting your account for the insurer. Some of the questions they will ask are:
* Do you have building sprinklers? If so, is it adequate for your type of business?
* What is the total square footage?
* Is there any exposure to flammables on the premises such as chemicals or fuel?
* Is there a central station burglar and fire alarm system?
* What is the age of the building?
* When was the plumbing and electrical last updated?
* When was the roof last updated?
* How is the housekeeping?
* Is there a preventative maintenance that is undertaken by the business?
- Is there a safety committee?
Loss control personnel often look to see how the organization perceives risk and what it is doing to address risk. The existence of a safety committee with a committee chairperson can have a positive effect on insurers.
- What is the attitude of management towards shopping the insurance?
Is this something that is done every year? Insurers often ask how often you shop your business insurance and this is reflected in the written report that gets to the underwriter. Underwriters generally do not want to expend the tremendous amount of time working up an account where the insured is only shopping price or will move the account the following year when a perceived better deal comes along. Insurers like to see stability with business insurance programs.
- Are there written safety and risk management standards in place?
Businesses that can demonstrate that they have written policies on safety and risk management that are regularly used often get high marks with insurers.
Businesses need to remember that a common obstacle to obtaining a favorable quote and preferred coverage terms is the loss control representative that the insurer sends out to the business to do a walk-through. This person reports back in writing to the underwriter their impressions of the business and will often make a recommendation to write or decline the account.
2. Start early.
In order to gain control over otherwise unacceptable increases, businesses must start early in the process of reviewing their program with their agent and determining what insurance companies to pursue for renewal quotes. Generally speaking, 120 days prior to expiration or earlier is a good gauge. With the flood of applications being sent to insurers in hopes of avoiding increases, insurers are in need of more time to review submissions.
3. Avoid flooding the market with applications.
It may not make sense to have three or four agents shopping your insurance. Rather, pick one to market your account to selective insurance companies that have an interest in your class of business. Insurers know which accounts are shopped every year and shy away from those accounts, says Robin McNamee, an underwriter with Chubb Group of Insurance Companies.
4. Consider higher deductibles.
Higher deductibles can minimize increases. Some businesses can easily withstand a $10,000 deductible or higher for property claims. Companies should avoid turning in small claims to preserve loss histories that all insurers review.
5. Trim frill coverages.
Ask your agent to breakdown the premium by coverage. For example, coverages such as towing and rental reimbursement on your automobile insurance are expendable.
6. Remember that your agent can be more important than your insurer.
Evaluate the competence of your agent in terms of the coverage program that has been put together. Use outside consultants to provide an objective view of the work product of the agent. Has your agent marketed your account to other insurers where appropriate and offered suggestions on alternative plans that can minimize your premium costs?
The relationship of the agent with the insurer is critical. Consider using an agent that has a substantial amount of premium volume with insurance carriers writing your type of business.
Look at the professional designations that your agent has earned. Agents with the Chartered Property Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC) designations have demonstrated a high level of expertise.
7. Maintain, to the greatest degree possible, the same expiration dates and insurance carriers on all of your policies.
This will assist in adding to your negotiating clout with a particular insurer and could also prevent disputes between policies.
8. In the current market, claims are more closely scrutinized so negotiate policy enhancements where possible and use carriers that offer broader coverages.
With insurers suffering underwriting losses, claims representatives are closely analyzing policy language after the time of a claim. Even in this difficult market, the better accounts still can negotiate policy language that is broader than average. For example, many coinsurance penalty clauses should be removed from property insurance policies by way of an agreed value clause. Make your policies as bullet-proof as possible.
9. If you are insured with unlicensed insurance carriers, also called surplus lines insurers, be aware that you may not be protected by the Michigan State Guarantee Fund if the insurer becomes insolvent.
Check the financial rating of these carriers by reviewing the A.M. Best Guide rating service which your agent should have access to.
Another issue is that any advance premiums paid to an insurance carrier that becomes insolvent will not, for the most part, be returned. For example, if you pay a $100,000 premium and the insurance carrier becomes insolvent after six months, you will be hard-pressed to receive a $50,000 return premium.
10. Avoid leaving your current carrier because of a nominal increase. Consider the long-term history of your premiums.
If you move to an unknown new insurance company, you may face mid-term expensive loss requirements, cancellations or non-renewals |
