As the coronavirus quarantine begins to lift state by state and businesses are allowed to reopen, they will be faced with an unprecedented business environment. And not to be over-looked is the management of their business insurance program. It is important that estimates-based on pre-quarantine operational exposures are reviewed carefully in view of current business conditions.
In addition, the insurance market is being driven largely by fears of how the pandemic is impacting its own industry. As such, commercial insurance underwriters are under pressure to find ways to increase premiums.
This presents a twofold problem for business. First, how to estimate insurable exposures? This includes sales, payroll, inventory, and business income limits to make certain they have adequate coverage limits based on current business conditions, And, secondly, how to present itself in the most favorable light to underwriters to warrant favorable pricing. The ability to help control premium costs will be essential as businesses struggle to manage expenses and to restore profitability.
Here are some ideas that business owners should utilize:
1. Work closely with your insurance broker – they represent you in the market. View them as your trusted advisor. Be prepared to discuss your business recovery plans with them in this pandemic world. Underwriters will value businesses that have a plan to restore financial stability.
2. Long term relationships with underwriters work to your favor. They know your business and most likely can offer better renewal terms.
3. Know your losses. Do you have currently valued loss runs for the last five years? For larger open claims, be prepared to provide details including action taken to prevent or mitigate future claims of this type.
4. What is your loss ratio: Premium to Losses? Is your insurance company making or losing money writing your business?
5. Do you have an Injury and Illness Prevention Program? How effective is it? Do you have measures in place to protect workers from Covid-19 contamination meeting CDC and state/ county guidelines? Underwriters will want to know. The governors of some states, such as California, have issued executive orders to establish a reasonable presumption that employees who contract the disease are covered under workers’ compensation.
6. Do you help manage your workers compensation claims or just leave it up to the insurance company? Being an active participate in the claim process demonstrates your commitment to help control claims costs. Do you have a return to work program? Do you have claim reviews? Do you know your experience modification?
Are there any outstanding loss control recommendations? Have you given your insurance company periodic status reports on open recommendations? Try to complete prior to the annual renewal or at least have a targeted completion date for each open recommendation.
Review your current insurance values and limits, they may be overstated and reflect more “normal” business conditions. Revising values and limits for the new business environment will not be easy. If you underestimate, you may have insufficient insurance; if your estimates are high, you may be over inflating your premium costs.
A few things to consider:
〉 Remember that the workers’ compensation and General Liability policies are subject to premium adjustment based on annual audit. If underestimated, this will result in a large additional premium due on the audit. Mid-term review of these estimates is recommended. Needed changes can then be made by endorsement with any additional premium spread over the remaining premium installments.
〉 Inventory values can change dramatically during the policy period as the business recovers. Monitor carefully and adjust by endorsement to the policy. For businesses with very large inventory values, monthly report of values may be an option.
〉 Have you prepared a business income worksheet? Business Income insurance will pay for the loss of profits and necessary continuing expenses during a suspension of your operations from a covered cause of loss.
〉 It may simply not be possible to estimate what the limit should be in this uncertain business environment. Remember that when determining an adequate Business Income limit, the limit must be sufficient for at least the 12 months following the date of loss. Consider doing a mid-policy term review of your Business Income limit and revise the limit as needed by endorsement. Do you have a business recovery plan that would help minimize the business interruption period?
〉 Do you have an Agreed Value to waive the coinsurance? You are subject to a coinsurance penalty – for both direct property and business income losses – if your limit at time of loss is less than what is required by the coinsurance percentage. A coinsurance penalty will be more likely in this business environment as sales and other information needed to calculate the business income value will be, in some cases, based on good guesses. Same for inventory values. Underwriters will typically provide an Agreed Value with a signed statement of property values and business income worksheet at little or no additional cost.
〉 Consider increasing your property deductible to help manage rate increases. How much of a deductible can the business financially absorb? Your loss history can provide some guidance to identify an optimal deductible level.
〉 Avoid the temptation to reduce coverage and limits to save premium. Do not risk a lot to save a little.
Start early and target to have all renewal information to your insurance broker no later than 45 days prior to renewal. Given business disruptions caused by the quarantine, expect that underwriters will need more time to quote. A timely and a complete renewal submission will be viewed favorably and help the underwriter justify better pricing.
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| Clint Clement is a Director of Commercial Insurance at S&K Financial and Insurance Service, Inc. in Rolling Hills, CA, where he specializes in business property, casualty, and management liability. His skills include policy coverage analysis, analyzing a client’s risk of loss, assessing exposures and how best to manage, designing cost-effective insurance programs. Clint holds the Chartered Property & Casualty Underwriter, and the Associate in Underwriting professional designations. He can be reached at Clint@sk-insurance.com. For more information visit www.sk-insurance.com. |
