In a recent survey of our commercial insurance staff, I posed the question, “What do you wish your customers already knew about insurance?” The ten items below are an amalgamation of the responses I received, and my hope is that this list will assist all business owners who read it to become better insurance consumers and risk managers.
ITEM No1 Property Valuation When discussing a proper limit for a commercial building (or personal residence), the potential sales value or loan balance has nothing to do with the appropriate insurance limit. Realtors care about what you could sell a building for, lenders care what you owe on the building and insurance nerds care about what it would cost to rebuild, as that figure is what the policy covers.
ITEM No2 Contracts
Contracts are a fact of life for all businesses, and some include insurance or indemnification clauses. It is wise to review those with your agent before signing. The worst time to discover harmful language is after you’re already legally committed to the deal.
ITEM No3 Liability Limits
Just because you elected a liability limit of $1,000,000, your liability is not limited to that figure. Buying insurance is purely an act of transferring risk to a third party (the insurer). If you are on the wrong end of a judgment that exceeds the limit you purchased, you will quickly discover the implications of the term “self-insured.” Ask your agent about a commercial umbrella. Much like actual umbrellas, they’re relatively inexpensive and can be extremely valuable when you happen to need one.
ITEM No4 Employee Dishonesty
Some employees steal from their employers. The largest losses I’ve seen came from long-term, trusted employees. Internal controls are the best remedy, but purchasing coverage is advisable as well in case those controls fail.
ITEM No5 Uninsured Motorist
Is “UM” a redundant coverage? Yes, potentially. Is it still advisable? Yes. It is estimated that more than 25 percent of drivers in Florida carry no insurance. Every time you purchase an auto policy (personal and commercial), you make a choice about UM and are asked to sign a specific form accepting or rejecting coverage. Be sure to discuss the implications of this decision with your agent.
ITEM No6 Audits
Workers’ Compensation policies are always audited after a policy year so that the estimated payroll provided at the beginning of the policy year is squared up with the actual annual payroll. For General Liability, if your premium is calculated based on a gross sales or payroll amount, your policy is likely auditable as well. If you’re not reviewing these exposures with your agent or, even worse, you have no clue how your General Liability premium is arrived upon, then you are signing up for a potentially expensive surprise.
ITEM No7 Agent of Record (AOR)
If a competing agent tells you that you need to sign an “Agent of Record” letter so that they can get a comparison quote for you, beware. By executing an AOR, you are firing your current agent and naming the competing agent in his or her place. Most insurers will not give quotes to more than one agent.
ITEM No8 Policies Matter
Your agent is your link to your insurance carrier, but the language in the policy is what governs at claim time. Read your policies, and ask questions of your agent. Your agent doesn’t expect you to become an insurance expert, but you’ll find yourself better insured if you actually review the document that provides the coverage.
ITEM No9 Drivers
The automobile exposure of most of our clients is their top liability exposure. That said, many clients hire people to drive on their behalf, whether in company cars or an employee’s personal auto, without reviewing their driving history. This is insane. At a minimum, you should get an annual Motor Vehicle Record (MVR) on each employee who drives for a business. Your agent can advise you as to whether an employee’s record would be acceptable to your insurer. We also recommend that clients collect personal auto insurance policies annually on each of their employees who drive their personal vehicles for business and that they also consider implementing a minimum liability limit for those policies.
ITEM No10 We’re Not Mind Readers
Talk to your agent when you begin offering a new product or service, purchase a piece of equipment, consider a new lease, expand to a new territory, or have a significant increase or decrease in business. If you work with multiple agents, share the policy information with each of them so they can advise how those policies would interact.
Some of the above will undoubtedly be remedial information to the established business and it can all truthfully be boiled down to one recommendation: Work with qualified commercial insurance agents and consult with them frequently, as you would with any trusted business advisers.
BRIAN SCARBOROUGH is a Principal at Scarborough Insurance, an independent agency that sells all lines of insurance and has been serving the community since 1961. Visit scarins.com for more information.