Insurance: Not Just “Set It and Forget It"

April 2015

If you’re not revisiting your insurance policies every year, you might be putting yourInsurance business at risk—and leaving money on the table. It might be tempting to simply send back last year’s policy requirements unchanged, but if your exposures have changed in any way, you need to account for it in your policy renewal each year. Whether you have a change in value due to growth—requiring new people, equipment, and inventory—or you’ve experienced operational changes, you need to mitigate exposure, and where possible, transfer risk.

The paperwork isn’t complex. You’ll need to produce a business income worksheet, a statement of values, and some accounting of in-house inventory. The agent first performs an audit of your current coverages, and in most cases, then undertakes an on-site inspection.

Using that information, the agent then goes back to your policies, exploring every facet of your property and liability coverage, including buildings, contents, business income; liability, including professional and excess liability, employee dishonesty, employment practices liability; and more. The assessment creates an awareness of the claim-producing hazards that exist (and if you can reduce those, you can potentially lower your insurance costs). Once the assessment is complete, your agent will sit down with you to go over your current risk, how much you’re willing to take on, any necessary adjustments to your policies, and how to address ongoing policy monitoring.

Among the core benefits of the audit is determining your level of risk transfer, which involves moving risk off of your plate and transferring it to suppliers, customers, and subcontractors. Risk transfer involves the use of good contract language, certificate of insurance usage, maintenance, and a defined risk management approach where risk is transferred to the appropriate party. Insurance is a form of risk transference, as is bonding.

In addition to making you aware of your overall exposures and risk, performing an annual insurance assessment offers several other benefits. For example:

  • insurance coverage that may have been deemed too expensive in the past may have seen a significant price reduction within the industry and can now be considered within the cost of risk acceptable to the insured;
  • revaluation of insurance cost drivers will allow for better business planning for the year forward; and
  • the discussion of current insurance market place, estimated cost for proper coverage and limits may put your business in a more competitive situation than peers, or in a more attractive situation to potential customers (i.e., higher limits).

Having a formal policy can also help protect you in a court of law should you ever have a lawsuit based on safety issues.

In terms of cost, insurance is based on asset value insured and exposure basis, (i.e., sales and revenue). Understanding how that works is critical to pre-planning your expense for the coming year and allowing for understanding of the audit process. The rate basis of most policies can be adjusted as growth happens, so it is not a pure mathematical increase in all cases.

At the end of the day, your goal is to be properly insured so that, in the event of a claim, you’re covered. The more information you give your agent, the better the coverage. Simply getting the same coverage you had the year before is likely less than you need. An annual assessment is about having as much of your exposure accounted for as possible and changing to meet your most current needs.

Read about one New England business owner’s “insurance wake-up call,” in “Tropical Products, Inc.: You Don’t Know What You Don’t Know.”  To learn about how Salem Five can help you optimize your business insurance policies, click here.