Dangerous Misconception About Biz Insurance

[I'm that guy]

Sometimes when you get quotes from different insurance companies for the same coverage, the premiums may be very different.

For the most part, given like information (value of property, gross receipts, payroll, deductible, coverage’s), companies should be pretty competitive with their rates. But sometimes they can be drastically different.

When this happens there could be several good reasons. Typically it all comes down to “class”. There are companies out there that may accidentally put you in the wrong class when making their bid. This will result in a huge difference in premium.

For example: A broker may class a “home painter” as an “artist.” This will provide a much cheaper, however wrongly classed, premium.

I’ve created many bids for companies and in some cases have been completely out priced by another provider. After a little due diligence I’ve discovered the “home painter” getting classed as an “artist” situation - and it all makes sense.

If that “home painter” has a claim and the insurance company finds out that he was classed as an “artist” they may have an issue with paying the claim. Then at that point the would be “artist” would have a claim against the insurance broker (who we hope has a little E&O to cover his ‘ass’ets)

Don’t always blindly accept the lowest price – especially if it is very different from other bids you have. THIS STANDS TRUE FOR ALL YOUR BIZ INSURANCE NEEDS!

Ask each company how they have you classed. If you want more clarity send your low bid to the high bidder and ask them what they see.

I just closed a case last week where I classed a client as a “Document Procurement” company. I was coming in approx 3x’s higher than his other bids. After a little better clarification from the client and also by looking at the other bids, I saw that he didn't really do Doc Procurement as I originally thought. So in the end analysis he was wrongly classed. When it was all said and done he got properly classed and is a happy client…of mine.

Rule of thumb – make sure that your Broker knows what he is doing and that you are giving the best information about what you do to him so that you get properly classed, and fully covered in the case of a loss.

If you’d like to make sure that you are properly classed or if you have additional questions – feel free to ask. I’d be happy to answer any questions you may have at no cost to you. Better safe than sorry.

[Richard45]

As a small business consultant as well as a Certified Fraud Examiner, I see both sides of this. I also see several issues.

First, I have found that some insurance agents can be a bit disengenuous in their classification of workers. The difference between office workers and shop workers can be more than $10 for every $100 of payroll. This really adds up. So, while their initial quote may be much lower, the business gets a very big surprise invoice after the first years audit. So, it's pay now or pay later.

Next, many businesses cheat when the auditor comes in. For instance, the business may classify a group of roofers as sales people. This will result in tremendous savings for the business even if it is blatantly wrong. You would think that the auditor could see this. However, in most cases, the auditor finds an unoccupied office desk and is handed a list of employees and their classification-the classification created by the business, of course. Once in a while, you may find that an auditor performs a quick walk through or a job site visit. However, this is still laden with problems.

I tried to get some work from insurance companies to deal with this issue. One problem is that alot of auditors are not in the position to understand that workings of many businesses. Another is dishonest business people. There are several ways to deal with this but that may be for another time. For whatever reason, the insurance people I have approached would rather not acknowlege this than have to deal with it, even though we are talking about millions of dollars.

The issue of injury can be a problem for businesses that cheat. For instance, why would this so-called salesperson have fallen from a roof? One way cheaters deal with this is to change the salesperson's classification from salesperson to roofer. This sounds odd but small businesses move employees around quite often. And remember, an audit is performed after the year end so it is very easy for businesses to do this.

This cheating is unfortunate in that it puts tremendous pressure on businesses who are honest. I'm still looking for inurance executives who would be willing to tackle this problem. There are ways to do this that would make the auditor's job much easier.

Cheers from Pittsburgh!

[pete]

It looks like you two are addressing two seperate issues.

First is general business insurance, where, quite frankly, I was never aware of class being a factor. Maybe because I was always either a retailer or a wholesaler, both fairly broad clases, I never gave it a thought.

Now that I think of it, I can understand that certain businesses would have a greater liability risk than others.

In the other case, you are talking about Workers Compensation, where specific jobs and job titles can have a tremendous impact on premiums.

While I sure don't have the answers, I do have several suggestions.

First, with both general insurance and workers comp, deal with insurers who are involved in your field. Virtually all trade associations have insurance companies they recommend and the companies in turn support the associations.

These companies have salespeople and staff who are familiar with the specifics of the groups members. The do know they are dealing with a house painter if he joins through the local Builders Association, not a group where you would expect to find an artist.

And by specializing in certain types of business, these insurance companies can soon get an idea of the ratio of support staff to outside workers, or assembly line workers, or deep sea divers, or whatever. And, using their own internal auditors will allow them to be pretty close on job classifications.

Where the insurance companies hire outside, freelanece auditors, misclassifiaction is a problem they have to accept. If they are dedicated to an industry, they should also dedicate employees to understand the industry.

Many companies do this. They don;t have names you see on TV. You find them in trade publications and internal association materials. These companies will have booths at industry trade shows, sponser dinners or suites at conventions and in many cases sell association memberships for the association when prospecting on their own.

I'm a great believer in trade associations and recommend them to all. From the local chamber of commerce to industry specific groups, you will make some great connections (I don't like the term networking, it seems too cold and calculated), save on a number of products and services and help boost your industry in general.

[Richard45]

Pete, I agree and I apoligize if I steered I'm That Guy's post in another direction.

You raise some good points. I still wonder why, however, that insurance executives don't approach this issue with more aggressiveness, particularly those insurance companies that may have had a bad year. But, there is so much money left on the table.

In practice, I doubt that many auditors use percentages to compare industry standards unless there clients in that industry are numrerous. Also, many businesses will have other lines of business that separates them, so they say, from the way their competitors operate. Essentially, auditors or, better yet, insurance executives need better processes for the auditors to follow.

Trade associations are OK in some idustries, I agree. However, the memebrs are sometimes so competitive that very little information is shared. And, in some cases, they are a means for vendors to sell a product. Most small business people think of their competition as taking food off of their families plates as opposed to wanting to share helpful information.

[pete]

Most won't share information with each other, and you can't blame them for that. But the insurance carrier can clooect that information, or in many cases, members will share anonymous information with a state or national level association.

Many associations publish high, median and low profit sheets and balance sheets complied from contributing members to be used as guidelines for all members.

And the rewards of cooperative buying will more than pay any membership dues. Collective rates on everything from credit card processing to health insurance provide excellent discounts off the "I'll go it alone" approach. It may feel strange sitting at the same table with competitors for dinner the first few times, but before long you understand there are obstacles that you all face together, from the costs of doing business to legislation that my influence everyone at the table.

[I'm that guy]

the main angle i was showing was that, sometimes, small biz owners who are looking for a deal, and Ins Reps looking for a sale, can meet in the world of "wrongly classified policies" and live happily ever after.

It's the responsibility of both parties to make sure that what is being sold to cover said losses will truly cover those losses.

I agree with all who have posted so far. it's just funny b/c i had another one today where a client said 'oh you're very far away from my other quotes". i chuckled and said "ok, np, would you mind faxing me what you have and i'll take a look to see if you've been set up the right way". b/c of the way i handled it (ie. client service) he sent me his info. truth be told, he was getting sold an inadequate policy for his needs. I didn't take the sale from the other rep. but i did tell the client what he should ask for. and the bottom line is that the rep will get a larger policy out of it, and most importantly, the client will get the right coverage.

it's not about the sale, it's about the right policy - for better or for worse. it's tough to get referrals when you've screwed someone over. try and get a referral from someone who you slammed a wrong policy on, who had a claim and was left high and dry. good luck!

I love my job. it's the most fun i've had in years.

cheers fellas!

[Richard45]

That's pretty good stuff Dominic, I'm glad you love your job. I happen to detest mine. You are right on about businesses getting the right policy. Otherwise, they are wasting their money because, essentially, they won't be covered.

[cognitive77]

I actually just ran into this situation last year. I was no insurance expert at that point in time and was anxious to get started on work. I had relied on my broker in that she understood me and could provide me with an accurate policy.

I just got done researching some quotes from several brokers and am getting ready to purchase a policy. The premium still does seem a bit high though. Would there be anyone here that's licensed in MO and IL?

Chris

[triblue]

All I do is negotiate premiums. Yes, all of what is stated can be true but..yet there is more. Rates on policies can vary just depending on who quoted it and what commission the agent is taking and what credits have been applied. The best part is getting the same carrier to quote the same account, and everything is the same ....except...yes, you've got it - the premium. I love that, that is when I reap the rewards of what I tell my clients. You need someone that is NOT an agent representing you. Agents have a bias since they are paid by commission by the insurance carriers. The more you pay the more they make. This is why many financial adviser switched to a pay for service versus selling you products...consumers just could not trust a financial adviser that was paid by...what they sold not bases on their advise. It is beneficial to find an insurance consultant - but not to many of us around. Ask the question are you paid by insurance agents or carriers if the answer is yes, they are not a true consultant. A insurance consultant should be paid by the consumer, it will save you enormous time and money.

[jpolito830]

You have really know what you are talking about..haha Thanks for the information everyone!