Q&A with Tim Davis

Q&A with Insurance Expert Tim Davis

 

What are the most significant Weather Related Risks for Small Businesses?

 

What’s the biggest mistake small business owners make when it comes to safeguarding their businesses from weather-related interruptions and why is that a problem?

The biggest mistake small business owners make is failing to buy business interruption coverage. This coverage is not a stand-alone policy, but is typically included on a business owners’ package (or BOP) policy. The Hartford has some of the best coverage available on their business interruption coverage as a part of their BOP policy, but several other carriers offer great coverage as well.

How can we know if we need flood insurance in addition to business interruption coverage?

Flood insurance will not only provide coverage to replace the damage to your building, but the business interruption coverage won’t respond for flood-related losses if you don’t have flood insurance in place.

What’s a common misconception about business insurance related to weather issues and what’s the truth? 

As highlighted above, business interruption coverage won’t apply to all weather-related issues. Whatever peril (or risk) caused the business interruption must be a covered peril on the BOP policy. If an earthquake caused the damage and interrupted your business, but you didn’t have earthquake coverage on your policy, then coverage for the earthquake damage wouldn’t exist.

Another common myth centers around off-premises power failure. If a weather-related event causes power to fail at a location away from your business (like a blackout or a transformer a mile away gets struck by lightning) … business interruption coverage won’t apply. With most policies, the weather-related cause of the power failure must happen at your business.

Do we need special coverage to protect from wildfires, or will traditional property & casualty cover us? Why or why not? 

A wild fire would be a covered cause of loss on many commercial property policies, but it is not guaranteed.  I would recommend reading over your policy – identify covered causes of loss as well as exclusions in the policy.

What kind of protection do we need related to employees and customers who might be injured on our premises during a weather event?

Your standard workers compensation insurance (for employees) and general liability insurance (for your customers) policies should suffice. These two policies should be enough to protect your business from incidents that occur on your premises.

What documents should we be sure to store safely to make the claims process go faster after a weather disaster strikes? Please describe each document and why it’s important.

Financial records will be the most helpful piece of information to provide to simplify the claims process. Carriers will evaluate the income losses your company sustained based off the company’s past sales history and reasonable projections of your company’s profits and losses for the time your company suffered from the weather-related interruption.  Policy information – including agent and carrier contact information.  Also, it is good to take pictures of the equipment in a building – including serial numbers.  This helps with replacement parts and valuation.

What phone numbers should we keep on hand in the event of a weather emergency and why? 

Make sure you have either your insurance agent’s number on hand, or (even better) the claims reporting phone number for the insurance carrier on your business owners’ package policy.  I would also consider having phone numbers for emergency response/clean up companies.  In the event of a major weather event, it is smart to have a few companies to choose from – maybe even consider a company from a neighboring community so that they are less likely to be impacted by the same weather event.

What’s the first thing we should do if our business is impacted by a weather event and why? 

Life safety is the very first concern – make sure that all employees and guests at your premises are accounted for and safe.  Then, secure your building and business personal property.   If you can help prevent further damage by taking additional steps, those extra expenses can be covered in some policies.

What else should small business owners know about preparing for and responding to a weather disaster? 

A proper BOP policy with business interruption coverage will provide a real sense of relief in the aftermath of a disaster. Loss of business income is the #1 reason that most businesses do not open after a serious loss. This coverage will help provide coverage for the actual income loss sustained; the net income (net profit or loss before income taxes) that would have been earned over that period; and provides costs for things like payroll so you can keep your employees while your company rebuilds.  Be prepared – think ahead – develop a contingency plan.  If something happens, have a plan already in place and make sure that everyone in the business is aware of what steps to take.

What other questions should I ask my agent about this coverage?

Check the time period you have for extended business income. Thirty days is standard coverage, but some carriers can offer up to 12 months by endorsement. Also ask your agent if you need contingent business interruption coverage — this pays out when your company is unable to operate because of an event like a natural disaster that damages the business of one of your suppliers or customers, which causes your company to lose income.

 

 

What is Inland Marine Insurance?

Also referred to as “Equipment Coverage”, Inland Marine Coverage is coverage specifically for property that is likely to be moved or in transit. It is a highly specialized type of property that requires a unique valuation. This can include products that you are having shipped across the country, but it can also apply to a tractor. This type of coverage is essential for many business owners and the best way to determine if you need it is to have a strong trusting relationship with your insurance agent and tell them everything about your daily operations.

Inland Marine CoverageNow many business owners have an initial reaction to being offered inland marine coverage. That reaction frequently is that this coverage does not apply to my business. In many cases a business owner feels their insurance agent is just trying to tack on an extra coverage. A coverage that they do not really need and in some cases, they might be correct. Again, if you have an insurance agent that you trust they should be able to explain this coverage and help you determine if it is right for you. Any agent worth their weight will not be mentioning a coverage that has no benefit to you the business owner. You might have a difference of opinion about what the risk is, but an agent should never recommend something you do not need.

The best way for an insurance agent to stay in business is to keep you the customer happy. Keeping you happy occurs by saving you money on your policy up front, but also in making sure you are fully covered when incidents do occur. This is where you may differ in opinion about the risks your business faces and about the amount of risk you as a business owner are willing to take. It is the job of the insurance agent to make you aware of these risks and offer the products for you to protect your business to the fullest.

Now I speak about this relationship with your agent, because Inland Marine Coverage is a specialized product in the insurance industry. It is very important for some business owners to have, but many business owners do not carry it and many do not understand how going without it puts their business at risks. First take the example of a construction business who has just a general liability and workers compensation policy. This is typically the bare minimum to get your business up and running. If your construction business is operating away from your business residence than all of your tools are not covered under your either of the policies you have in place. If you were to severely damage a tractor or some other type of expensive equipment than you are responsible for any repairs that might occur. Say you have an expensive piece of machinery that you cannot operate without. If you do not have cash on hand to repair or replace that piece of equipment what is your business going to do? If you have an Inland Marine Policy in place than you can replace that piece of equipment through your insurance policy.

Again having a good relationship with your agent and speaking honestly with them about your daily operations can go a long way towards determining whether you need Inland Marine Coverage. Having open and honest discussions with your agent allow you to determine what risks you have and how much risk you are willing to take as a business owner. The amount of risk a business owner is willing to take is different for every business. Your agent works with all types of business owners on a daily basis. If you are the type of owner who is willing to take on more risk, you should make that known to your agent. At the same time you should partner with an agent you trust and listen to them when they recommend some type of coverage. If they are the type of agent you should be doing business with than they will not be recommending something that is not in your best interest.

What is the Assigned Risk Provider?

The assigned risk provider is also frequently referred to as The State Fund or The Pool

Workers’ Compensation Insurance Coverage is required by law in nearly every state in the country. The basic purpose of the Workers’ Compensation Insurance is to provide wage replacement benefits and medical treatment for employees who have been injured on the job. Workers Comp prevents the employer from bearing the costs of injuries that occur during normal business operations.

Each state has their own method for how they go about determining rates on workers’ compensation class codes. Most states partner with the National Council on Compensation Insurance (NCCI) to determine rates for different class codes. Some states; like Indiana for example, have their own rating system administered by a government organization. Most use the basic guidelines of the NCCI system.

Every state also has a different way for how they go about setting up a provider of last resort for the employer’s of the state. This provider of last resort is also referred to as the assigned risk provider, the state fund or sometimes as the pool. This provider is designated as the provider of last resort for businesses who cannot find coverage through the open market. It is typically more expensive from this provider for a number of reasons.

Businesses that end up having to purchase coverage from the assigned risk provider, may not be able to find insurance coverage for a number of reasons. Lots of times it is because the business operates in a classification code that carries more risk than most carriers are willing to take. Sometimes it is because that business has had too many claims within a short period time. It also is frequently because the business just does not generate enough income for the amount of risk in their industry. States usually have a requirement that the business has to try to obtain coverage from a certain number of providers on the open market before they can apply to the assigned risk provider. Usually that number is two or three providers.

There are three main ways states go about providing employers with an assigned risk provider. Some states provide their own fund, some use NCCI and some have a partner carrier who guarantees coverage for employers who cannot find coverage on the open market. Typically states who have a strong assigned risk provider who competes with the open market enjoy the best rates on workers’ compensation insurance. There are different ways to provide this strong provider, but typically the stronger this provider is the lower the rates employers pay.

Utah is an example of a state who has its own fund. This fund is called the Workers’ Compensation Fund. This fund dominates 57 percent of the market and is the main reason Workers Compensation Utah enjoys some of the lowest rates in the country for workers comp coverage. Colorado has a partnership with a company called Pinnacol. Pinnacol was begun around the time workers’ compensation became a requirement in the state. It was designed in partnership with the state government so there would always be someone guaranteeing coverage and competing to keep the rates reasonable for the employer’s of Colorado. Both of these states enjoy some of the lowest rates on Workers’ Compensation Insurance because of their strong Assigned Risk Providers. New York is an example of the other end of the spectrum. New York has its own state fund administered as a non profit agency. New York also has very difficult regulatory compliance regulations for workers comp. These regulations force many carriers to simply not offer coverage in the state. All of these factors combine to cause New York to have some of the highest workers compensation rates in the entire country.

So administering the state fund is left up to each individual state. Again there are three main ways the states go about doing this. Some handle it themselves, others partner with an outside carrier and some contract this service out to NCCI. All three ways can be effective ways to keep costs down for the employers of that state. The strength of these pools goes a long way towards determining what employers across the state pay for workers compensation coverage.

What is Artisan Contractors Insurance? 

Inside the insurance industry Artisan Contractors Insurance is commonly referred to as insurance for Artisan Contractors. What is an Artisan Contractor? That is a question many new business owners ask when applying for insurance the first time. These business owners frequently find out this is what classification their business is in. Artisan Contractors are a wide range of businesses that operate in different parts of the construction industry. Electricians, Plumbers and Painters are all included in this category.

Artisan Contractors Insurance for Electricians

Some common (NCCI) industry classification codes include:

  • 5191 Electricians
  • 5183 Plumbers
  • 5537 HVAC Contractors
  • 5221 Concrete Construction
  • 5474 Painters
  • 5437 Finishing Carpenters

They each have a similar, but different role within the construction industry and each type of work carries unique risks. From an insurers perspective they each carry their own risk and that is why they are separated into several separate class codes. Working with your insurance agent to make sure you are in the proper classification code can go a long way towards removing any headaches down the road relating to your commercial insurance policy.

Below are some common types of insurance recommended for Artisan Contractors Insurance:

 

General Liability

General Liability (GL) is typically the first line of insurance purchased by a business. GL is required by law in most states; additionally, businesses are often required to purchase coverage with most contracts for leases, loans, and work performed for others. GL exposures are primarily at the contractor’s office or shop and are generally limited due to lack of public access to the premises. Retail sales increase the possibility of customers slipping, falling, or tripping if customers visit office to view products.  Job-site exposures include potential injury to the client or damage to the client’s property. Tools, power cords, building materials and scrap material, use of saws and other power or hand tools are all potential risks.

Workers’ Compensation

Workers’ Compensation Insurance is a state mandated insurance coverage required by nearly every state in the country. The basic purpose of Workers’ Compensation Insurance is to assure that injured workers get medical care and compensation for a portion of the income they lose while they are unable to work.  Workers receive benefits regardless of who was at fault in the accident. Also, Workers’ Compensation Coverage prevents the employer from bearing the costs of injuries that occur during normal business operations.

Commercial Auto

Automobile exposures are generally limited to transporting workers, equipment and supplies to and from job sites. Hazards depend on the type and use of vehicles and radius of operation with the main hazards being upsets. Vehicles may have special modifications or built-in equipment such as lifts and hoists.  If employees utilize their own personal vehicles for work related tasks then Hired and Non-Owned Coverage should be purchased.

Hired and Non-Owned Auto 

Hired and non-owned auto insurance is commonly added (or endorsed) onto the commercial auto insurance policy. This endorsement adds additional coverages for the insured in the event there becomes a liability issue for their business for an automobile accident involving a vehicle they don’t directly insure. This coverage will pay for damages to a third party, on behalf of you the insured. This coverage kicks in if the business is held liable for an accident or injury caused by a vehicle they hired or a vehicle someone uses while performing work for a business. If you send an employee to run and errand on behalf of the business, your business is responsible for damages that occur.

Property Insurance

Commercial property insurance for business owners covers many types of losses and damages to a companies property. Property exposures are generally limited to those of an office, shop, and storage of materials, equipment, and vehicles.  Property insurance typically provides coverage for events like fire, smoke, wind, hail and vandalism. Policies often have included or excluded coverages. Some natural disasters like earthquake or hail, may have separate deductibles.

Inland Marine

Inland marine exposures include contractors’ tools and equipment, including ladders and scaffolding, hoists, and portable welders, the transport of materials, and installation floater. Goods in transit consists of tools and equipment as well as products purchased by the customer for installation at the job site.

 

Business Personal Property Insurance

Also referred to as ‘Contents Coverage’

For most business owners this is one of the most overlooked coverage options out there, in my opinion. Often times when I ask potential insureds if they want this coverage they quickly say NO I just need general liability. This may be ok for a few segments of business, but overall this is actually a really important coverage that doesn’t cost much more. What most business owners do not realize is that around 60% of companies that do not carry this coverage, do not reopen after a catastrophic loss. What exactly is Business Personal Property Insurance Coverage you ask? Business Personal Property Insurance (Contents Coverage) provides coverage for furniture, fixtures, merchandise, materials and all other personal property owned by you and used in your business. Coverage is generally at replacement cost. Now try to envision what this means to your business. If you are a contractor and have a shop that houses all of your tools, unscheduled equipment, etc. A loss wipes out your shop whether it was from fire or something else. Most of your tools and other items are now not usable. What do you think the cost of replacing those are without insurance coverage? This number will vary depending on the size of your company but when you start buying or adding up the value of everything you had this number escalates pretty quickly. If you had this coverage you probably have a $500 deductible but that will pale in comparison to the actual cost of replacing everything you need to function like the day right before your loss.

Business Personal Property Insurance

Lets take a look at a different type of business and show the importance of Business Personal Property Insurance Coverage. Take a restaurant for example. Lets say you open a restaurant. You are new and business is slow at first. Money is tight due to all of the start up cost associated with getting a business off of the ground. With buying insurance for possibly the first time quite a few owners are caught off guard by this cost> they may  want the bare minimum to get coverage in place to satisfy a lease, etc. Only give me general liability is what they will tell us. Its the only thing that is being requested from my landlord or lease. We recommend additional coverage that is vital in this type of operation and that is furniture, fixtures, kitchen equipment, etc. They decided well I will just add that later. Business owners are very busy especially at the start up phase and they continue to say lets just wait or I don’t have time to deal with it right now. That is a valid point, but imagine if they are four months in and they have a fire that wipes out their restaurant. They only have liability coverage. All of a sudden the dream they had of owning their own business is suddenly snatched away from them. When you way the cost of having to replace everything out of pocket to get back open, it can be crippling to your business.

The cost of this coverage varies with the amount you need to cover. For restaurants specifically, carriers often have a section where they can put the vast majority of the amount you value into a section called restaurant equipment. This is rated better than just blanket business personal property coverage and will make this coverage even that much more affordable.

At the end of the day at least get this coverage priced along with your general liability. That way you can make an educated decision on whether you want to further protect your business. It is after all your lifelong dream of being a business owner. Do you really feel like rolling the dice with your dreams.

6 Types of Insurance every Home Healthcare Small-Business needs.

Home Health Care is one of the fastest growing industries in the country. With the baby boomers moving up in age, the need for these services is growing larger every year. The need for proper insurance in these businesses is also becoming more important. For a business owner, most of the clients in this industry are nearing the end of their life. Most are not in good health. Many get hurt or are sick frequently. Protecting your business from mistakes or court costs is crucial in this industry. Below are 6 types of coverage every Home Health Care Business should carry.

Home Health Care

  • General Liability
  • Professional Liability
  • Business Personal Property
  • Hired and Non-Owned Auto
  • Workers Compensation
  • Commercial Crime/Employee Dishonesty

 

General Liability

General Liability (GL) Insurance, in most cases, is the most important insurance coverage a home health care business can obtain. In most states it is required by law and it is usually the first line of insurance purchased by a business. It protects your business from most liability exposures other than automobile and professional liability. Other coverages are usually added to this depending on the business needs, but all businesses need General Liability. Unlike Workers Compensation Insurance this coverage protects your business from liability to third parties.

 

Professional Liability

Professional Liability Insurance is coverage for professional businesses that give expert advice or provide technical services for a fee. It is designed to help protect a business against any claims of negligence. Therefore, professional liability insurance helps business owners defend themselves from lawsuits and helps pay the damages awarded in a civil lawsuit. Professional liability insurance is commonly referred to as errors and omissions (E&O) or medical malpractice.

 

Business Personal Property

Business Personal Property Insurance is usually an addition to a Commercial Property Insurance Policy. It protects your business from damages to your buildings and property of your business. The personal property of your employees and the personal property of others you might be responsible for. In most policies it also provides additional coverages including: debris removal, pollutant cleanup, preservation of property, fire department service charges, increased cost of construction, electronic data, newly acquired or constructed property, off-premises property, valuable papers and records, outdoor property, and nonowned detached trailers

 

Hired and Non-Owned Auto

This type of auto insurance coverage is for when employees of a home health care business use their own vehicle or a rented vehicle to do company business. This can be as simple as an employee running to the grocery store to buy snacks for a meeting, an employee using a rented vehicle while away at a conference or using a rented truck to transport your equipment.

 

Workers Compensation

Workers’ compensation insurance differs from most other forms of business liability insurance. That is because it is specifically designed to cover your employees and not third parties. Workers Comp covers insurance claims by employees in the event they are injured on the job. The function of workers compensation insurance is to insure a business is not liable for most accidents that occur on the job and employees have comfort knowing their doctors bills and some lost wages will be covered if they are hurt on the job.

 

Commercial Crime/Employee Dishonesty

This type of insurance coverage is mainly for employee theft of money, securities, or property. Most policies include some or all of the following types of employee crimes: forgery or alteration, computer fraud, funds transfer fraud, kidnap, ransom, extortion, and counterfeit money. It is usually written with a per loss limit, a per employee limit, or a per position limit.

Lawncare & Landscaping

Lawncare and landscaping businesses are similar yet very different.

As a business owner of a lawncare or landscape company you might have had to shop for insurance. You might have had to do this to either to meet state requirements or to make sure your business is protected just in case an injury occurs to an employee. Recently I have taken many phone calls from owners of small lawncare or landscape companies that have been asked by a client, sometimes even a home owner to provide proof of work comp coverage before they are grated the job or bid. Whether you have a small or large lawncare company chances are you have had to make a call or two to obtain a work comp insurance certificate.

When going through this process have you ever wondered how your company is classified? There are two class codes that contemplate lawncare and landscaping, 9102 and 0042.  The most qualifying question to determine what class code you are in is, does your company primarily engage in maintaining already existing lawns and garden beds or is your business designing and installing landscape or flower beds. Another deciding factor is if there will be any installation of paving stones or rock beds. The class code 9102 is designated for lawncare or maintenance of existing lawns. Snow removal will also be covered under 9102 and should be discussed if there is snow removal operations in the down season of lawncare. 0042 class code is designated to design and installations of lawns and beds. Any sod laying or pavers would also fall under the 0042 class code. However both class codes do contemplate the applications of fertilizers and insecticides.

One aspect of both classes of business, that I feel I must bring up, is tree trimming. If at any time there is tree trimming the class code 0106 would need to be added to the work comp quote. Designated payroll can be added to that class or it can be added on an “if any” basis. I also must fully explain that the 0106 class code is considered high risk. It is very difficult to place with an insurance carrier.

When calling in or submitting an online quote, the first couple of questions back to you will most likely be:  How many employees not counting the owner are there and what type of lawncare are you providing? If the answer to the first question is there is only the owner, which some times is the case, that would be an owner only policy. If there is one employee or more there will need to be included a total annual payroll. At that time we would figure out how to best classify you. lawncare or landscape will find the best price and insurance carrier for your company.

Faulty Workmanship Coverage

Faulty Workmanship Coverage, offered by Builders and Tradesmen’s Insurance Services (BTIS)

One coverage that most carriers exclude is Faulty Workmanship Insurance. However, one carrier writing liability insurance is Builder & Tradesman Insurance Services (BTIS). Some might assume this would be a coverage included in Commercial General Liability (CGL), bnut many times it is not. Usually this is a standard exclusion from CGL policies. Faulty Workmanship Insurance is coverage for a contractor. It is coverage for property damage due to the contractor’s own faulty workmanship. Are you thinking why would this not be a standard coverage for CGL policies? Well, liability policies are designed to protect the insured when the contractors have defective materials or cause injury to property other that the insured’s own work or products.

Faulty workmanship can also fall under a design Errors and Omissions Policy. This can mean poor building or installation by the contractor. This could also be anything from a bad roof repair or install, to bad wiring done on a remodel. Most insurance policies do not cover the cost to repair or make the errors right. For $30 in additional annual premium BTIS is able to offer that coverage on the back of most CGL policies.

Three exclusions are known as the “your work” exclusions and are excluded coverage’s by the insurer. Damage that arises out of defective workmanship, damage to the defective work and damages incurred to replace the defective work. Business owners should generally absorb their own replacement and repair losses. After all, if you accidentally did damage to either the product you were installing or did damage to the property while installing the product, you typically want to show your client it was an error on your part and fix the damage.

The annual premium on this coverage is very modest for contractors. This is one of many reasons it pays to understand and know what coverage’s are included or excluded on your liability policy.

Attention: You’re facing a nonrenewal.

Your current insurance policy is being non-renewed due to….

You may have received a notice that starts, sounds or maybe feels something like the title above. Insurance cancellations, despite popular belief are actually more common than you would think. They are very serious and should be responded to with action swiftly, but they are not always an awful “kiss of death” from the insurance industry. Some business owners I have worked with seem to think this is so. On the other side, it is something you need to respond with action to regardless.

 

We will discuss today most common insurance non-renewal or cancellations we see and how you should respond to the scenarios:

 

 …..Your reason for nonrenewal for underwriting reasons

 

What? Are you kidding me? Yes this is by far one of the most vague reasons, but more common than you think and as an insurance agent this tells me basically no reason why you are facing a nonrenewal. Generally this does mean one of two things. Either something about your operations (claims history, etc) or something in particular about your business makes the perceived risk for the insurance carrier less than satisfactory in their review. It could mean the company has changed their underwriting guidelines as a whole, which just happens to mean your company doesn’t fit with their strategy. Simply put insurance companies generally know what their company is good at and what they are not. Some insurance companies prefer to write roofing companies, but wont write clerical offices. many are just the opposite. Most companies fall in the middle which is why this becomes very common.

For Example: Transportation claims have been a leading cause of claims for several years, especially relating to workers’ compensation insurance. As a result in the last few years several insurance carriers who in the past would write these types of accounts have now decided they were no longer offering coverage for companies in your industry or class code. For some insured’s its no surprise when their claims have shown them good reason for this, however some trucking companies who have done well at controlling claims would see non-renewal notices for this type of reason. They were not seeing the non-renewal because of their claims or experience, but more because of the industry as a whole not performing well. This can be discouraging for these types of clients. Clients who take pride in controlling their claims and being very marketable risks to insure. These are the types of clients who need an experienced insurance agency on their side. Preferably one with several market alternatives to move to when this happens.

            What to do?

Discuss with your independent insurance agent what other carrier options are available. Start this process soon so you can make an informed decision on the direction you want to go without being pushed into a last minute decision. Requesting claims history reports and Experience rating worksheets from companies you have been insured with for the last 5 years is a good start as most companies will need this in order to quote.

 

 

Nonrenewal because Agent is no longer representing this insurance carrier…

 

Insurance companies and agencies have contracts come and go fairly often. More often for some agencies than others. This doesn’t mean your agency is not a good agency or that the carrier you are insured with is not a good carrier to do business with. It just means that one or both of those parties have decided they are not the best partnership at this time. This decision has absolutely nothing to do with you as the business owner with the exception that you are part of the pool. Agents within the industry call this the agents “book of business”. Sometimes, for one reason or another, the agency or carrier has decided that the partnership does not fit one o f their needs at this time.

            What to do?

Decide who you like more. If you have not been happy with the agency, call another agency. Especially one who has access to several commercial markets. A lot of times your policy could be moved into another agency book with a just few forms signed.

 

If you like the agency more than you like the carrier, discuss with your agent the alternatives they have to offer so a replacement option can be found well in advance of your renewal date.

 

 

Nonrenewal due to Claims or Non-Renewal Due to payment history issues

 

Don’t be discouraged. We all have set backs and things come up with payments. Insurance claims are the reason we buy insurance. These statements are not to enable you to continue on your path, don’t beat yourself up, but action and change is needed in these situations. Otherwise you are going to see the same situation in the future.

           What to do?

Nonrenewal due to payment issues are a sign that you want to look at things. You might have an accounting back-log or issue that’s delaying your payments (Fix the back log issue and prioritize making payments on time).  You might have cash flow issues from high accounts receivables (manage this aggressively-maybe even consider outsourcing to a collections agency if need is to that extent). Your sales are just low throughout the year or part of the year (work to improve sales or drive down costs more aggressively-most importantly budget for your known operating costs like insurance). These are the most common reasons we see cancellation of insurance. The seriousness of this issue extends into all aspects of your business and is a reason why several studies point to poor accounting practices as a leading reason why many small businesses fail.

 

A Non-Renewal due to claims do happen often. There is really no one answer to how to handle these because the scenarios are always different. Some carriers are more aggressive than others. Some are more reactive while others are more proactive. This is really where having an agent that understands these differences in carriers is vital to helping diagnose the best game plan for your business. For instance, if you had one claim that blew up into a much bigger issue and you have made the necessary corrective actions, most of the time that is not going to be hard to overcome in finding a competitive replacement for coverage.

 

But when you have shown a trend of several claims, either big or small, corrective action must be taken. If these incidents have similar reasoning than from the carriers perspective it may point to poor claims management. If sufficient corrective actions have not been made than the claims are likely to create the same or worse problems for you in the future. These types of issues must be addressed or the problem with claims and obtaining insurance will get worse over time.

 

Overall a nonrenewal of your insurance should not be taken with a grain of salt, but are also not a reason to close your business. The issues are sometimes within your control and many times they are something no one could prevent. The key to is to manage and react promptly. Get past the problem with a well thought out game plan. The help of a good agency is crucial to deal with these problems for your business.

Experience Modification Overview

The Experience Modification Rate will only apply to your workers’ compensation policy. Typically you will not qualify for a rating until you have been in business for 3 consecutive years with workers’ compensation insurance coverage. Your Experience Mod compares your workers’ compensation claims experience to other employers of similar size operating in the same type of business. If you have fewer claims than other companies of the same size and industry you will receive a lower Experience Mod Ratio. This ratio is used against your annual premium and results as a discount. On the flip side of that is if you have higher claims in a four year time period then it will result in a higher experience mod. The claims history will generally lag at least a year. What this means is your current claims history, whether good or bad, will not have an effect on your renewal experience mod. The modification only calculates policy periods that have been completed. So if you have a good year this year it will not help with your experience rating for two years. On the same note if you had a bad year it will not effect you for two years as far as rating goes. Experienced companies that monitor their workers’ compensation premium understand and utilize their experience mod annually. Understanding your experience modification rating and monitoring is another area in which you can reduce your workers comp costs. Companies who effectively manage their safety programs not only understand how this works, but also have assigned someone to monitor this on a regular basis. It has a direct correlation to how much you pay in work comp premiums.

Where to find your Experience Modification Rate: You will receive an updated Experience Modification Rating Sheet each year prior to your policy renewal date. Your experience mod is also listed on the declarations pages of your workers’ compensation policy. This will reflect last years rate. You will want to contact the National Council on Compensation Insurance (NCCI) directly or your respective State Insurance Bureau. They are able to send you a copy of your new rate, which will be used for this years premium cost. If you don’t know how to find it reach out to your insurance agent and they will be able to point you in the right direction. Most companies whose annual premium are in excess of $5,000 and have been in business for more than 3 years will receive an Experience Modification Rate. The requirements could vary per state and will if you have an individual bureau that handles the rating outside of NCCI. Each year insurance carriers report to the calculating agency your class codes, payrolls and losses for the last five years. The computing agency uses three complete years of data ending one year prior to the effective date of the rating period. For example, a rating in 2015 normally will not use 2014 but would include years 2011-2013 in the formula. Don’t forget about your current years claims. These usually present the greatest opportunity for cost reductions. Remember this years claims will affect your Experience Mod next year.

How claims affect the Experience Mod:

Medical-only claims Claims that require medical treatment only are usually less severe so employers should not be penalized when they occur. Consequently, any medical only claims are reduced by about 70% before they enter the formula. You can take advantage of this by ensuring that injured employees remain at work when possible or return to work within the waiting period. This is where an effective claims management and return to work program can have a dramatic effect. Should you need help in establishing a program, Western National Loss Control Consultants can help.

Lost time claims The first $5,000 of a lost time claim is counted at full value. The dollar amounts after $5,000 are discounted. There is also a large claim cap limit to protect you from a catastrophic loss. Because the first $5,000 of each loss goes into the formula dollar-for-dollar, severity is a factor. A single claim valued at $20,000 has less effect on your Experience Mod then 10 claims valued at $2,000.