FORT LAUDERDALE, FL - February 21, 2012 - While it is true that business insurance is important for all businesses, it is exceptionally so for contracting risks. There is so much to know that it often takes a sophisticated insurance buyer and/or risk manager to sort through the various options.
Those that have been buying commercial insurance policies are likely aware that these policies are negotiable, based on a variety of factors. Underwriters typically have some latitude, depending on the qualities of the risk, and their relationship with the agent/broker or broker. For these reasons, it is extremely important that you position yourself most effectively to achieve the best results for your company.
First, you should think carefully before choosing an agent/broker. What are their areas of expertise? What clients make up their book of business? Can they provide references? Do they have success stories to tell about how they have helped their clients save money? Which insurance carriers are they contracted with? How aggressively will they work for you when negotiating price and coverage with the insurance company?
It is critical that your agent/broker understand your business, and the exposures you face, so that they can best advise you as to how to be properly protected. I have often earned a client because the agent/broker failed to understand their client's business. For example, I was working on a proposal for a residential high rise concrete contractor who proudly displayed pictures of his completed projects in his office hallway and conference room. He allowed me to review his policies in order to provide him with a coverage comparison and to make sure he had the proper coverages. I found that his policy contained an exclusion for all residential construction. Not a good situation given the type of work performed by this particular firm. I showed him the exclusion on his policy, and he agreed to allow me to represent him with the carrier. We negotiated with the underwriters to get the exclusion removed, and additionally negotiated a $70,000 in premium decrease.
I recommend that you ask your agent/broker to provide you with a marketing report that shows their due diligence in securing proposals. It should list the name of the carrier, and the result when approached: i.e. declined to quote, not competitive with other pricing received, etc. This is, in effect, requiring them to show you their homework, and though not foolproof, can give you an indication of the work that was performed on your behalf.
Next, it is important to recognize the role of the underwriter in the process of securing and renewing an insurance policy. The underwriters are the checks and balances for their company, and it is their responsibility to make sure they are taking on clients that have the potential to be profitable. They typically look for the following: compliance with and adherence to safety programs (formal and in writing is always preferable), drug free workplace policies, OSHA compliance, and overall loss ratio. When underwriting an account, a company that has all the proper programs and controls in place will typically receive more aggressive pricing and coverage enhancements than a company that does not have these programs in place.
With respect to Workers' Compensation, the State of Florida offers credits to employers who comply with certain programs: 2% for Safety and 5% for Drug Free. In addition, Florida has offered the Florida Contractor's Premium Adjustment Program to offer additional credits to contractors who have highly compensated field employees. Though the program has been mostly phased out in 2009, you are eligible to go back three years to recover those credits should your agent/broker have missed them.
Over and above the upfront credit, insurance carriers offer premium discounts on their workers' comp policies which are a percentage of the total premium dollars paid. Insurance carriers can file for a stock company discount or a mutual company discount (and sometimes file for both). The stock company discount is more desirable as it is larger. If a carrier has filed for both discounts, you should look for your agent/broker to negotiate the higher discount (depending on the overall qualities of your risk as discussed above).
Lastly, many insurance carriers offer incentive programs, where the ultimate premiums on workers' comp policies are a function of claims. Premiums are returned in the form of a dividend, and are payable at some point after policy expiration. The dividend programs are typically negotiable, and many insurance carriers have several different dividend plans available for use based on the discretion of the underwriter. Also, some carriers offer flat percentage dividends, with the credit payable at audit and regardless of loss experience. It is important to remember that dividends aren't guaranteed, and must be declared by the Board of Directors of the insurance company, so financial strength of the insurance carrier is very important. AM Best reviews and assigns ratings to all licensed insurance carriers, and is an excellent resource for researching the financial strength of these carriers.
With regards to General Liability policies, underwriters look very closely at how contractors manage risk transfer: contract forms (limited or broad), waivers of subrogation, etc. The better controls your firm has in place for managing risk transfer and the least amount of exposure you assume when entering into a contract, the better an underwriter likes it. Though it is sometimes difficult to modify contract language, (especially when doing work for municipalities or very large GC's), it is always advisable to attempt to limit your exposure and manage your risk transfer through contractual wording.
With respect to use of subcontractors, it is very important that contractors use experienced, financially sound subs, that are able to provide certificates of insurance with liability limits at least equal to theirs, and supported by a carrier that is at least "A" rated by AM Best. Also, the contractor should require that their subs should name them as an additional insured to ensure that any insurance claims arising out of work by the sub will be handled by that subs policy on a primary basis, and does not become the primary responsibility of the contractor.
It's important to note that the insurance industry is cyclical, fluctuating between markets that are hard (limited capacity and coverage combined with high pricing) and soft (more capacity, carriers willing to negotiate coverage and pricing). The market is currently soft with revenues down due to current economic conditions. Insurance carriers are looking to generate premium and round out accounts by adding other lines of coverage that they may not currently carry for a particular client. They are being aggressive in quoting and renewing policies, so now is a good time for business insurance buyers.
You have the ability to positively influence the outcome when securing and placing insurance policies. If you choose the best agent/broker to represent you, and do your part by controlling your claims and exposures through some of the techniques discussed above, you will achieve the best possible result. Good luck!
Lorin S. Montgomery,VP, CPCU, represents Corporate Insurance Advisors, a commercial insurance agency located in downtown Ft. Lauderdale. She provides a full range of insurance services individually customized to the specific needs of mid to large size businesses. Lorin has managed the insurance programs for many large South Florida businesses for almost 27 years.
Lorin S. Montgomery,CPCU
Corporate Insurance Advisors, LLC
100 NE 3rd Avenue Suite 1000
Ft. Lauderdale, FL 33301
Phone (954) 315-5000 ext. 123
Fax (954) 315-5050