Business Insurance Shopping Tips

Putting blind trust in an insurance agent and not thoroughly checking out plan specifics once put the author’s family business on the hook for a $20,000 end-of-the-year policy adjustment. Here are some lessons to keep in mind for your own business insurance.

Business Insurance Shopping Tips

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Business insurance is a complicated subject for even veteran business owners. Its complexity gets exacerbated because we don’t trade in it every day. Yet, at least once a year, we need to make big, expensive decisions on the topic. 

My plumbing company once churned through three different business insurance providers in three years. That’s not a stat I’m proud of, but we definitely learned lessons.

You can’t throw a rock at a networking event without hitting a commercial insurance agent or broker. They aren’t difficult to find. Because of this, many business owners just meet an agent and sign up for whatever coverage they prescribe. Calling it “shopping for insurance” is an overstatement.  

That’s fine if you’re working with someone you trust. But if you just met this agent and they have no track record with you other than a firm handshake over lukewarm spring rolls, try some due diligence. Business insurance is about managing risk and might stand between you and business bankruptcy. The agent is only one piece of the puzzle.

In case you aren’t familiar with the whole puzzle, let’s review the business insurance infrastructure: As I already mentioned, contact is typically first made with an agent. That individual is more than a salesperson. Think of them as a risk management consultant who needs to spend some time understanding and analyzing your business. Only by studying your past, present and future can a broker make sure your policy will protect you when you need it. 

They should ask you a lot of questions, and you should offer very detailed answers. Don’t expect a short conversation. 

A commercial insurance agent can be a broker agent or captive agent. A “broker agent” represents clients for multiple insurance corporations, allowing them to shop around for prices and coverage options. The company the brokerage agent works for is an account servicer and doesn't answer to the company that writes your insurance policies.  

A “captive agent” (sometimes referred to as a “direct writer agent”) works for one insurance company and only sells one brand of insurance. They work for the insurer.

Regardless of the agency type, there is typically a dedicated admin or account executive who supervises the day-to-day “maintenance” of your policy once written. This might include securing certificates of insurance or adding vehicles and drivers to your policy. The admin is your insurance bestie. These people make paperwork fly and get answers fast. 

If you need to make a claim, a good relationship with your admin can save you several gray hairs. Be terrified of 1-800 numbers, which are a black hole of insurance customer service. When you need to make a claim, you want your insurance to work as designed. This is not the time to learn your insurance company is difficult to work with.

Plumbing is a high-risk business, so cheap insurance is trading monthly premiums for risk. You are paying a different price. Less insurance coverage and higher deductibles are a transfer of risk from the insurance company to you. Not only should you understand that, but you need to be prepared to handle the cash flow of an emergency when it occurs.

Everyone wants to lower their insurance cost. But — forgive the cliché — you get what you pay for. Real insurance savings comes from maintaining a safe work environment, low turnover and minimizing mistakes. But even if you are the best, accidents happen. People have bad days, including you. There is a very real possibility that you will eventually need to use that expensive insurance one day.

With or without claims, as your company grows, so will the cost of your insurance. It is smart to be honest about that growth upfront. Not only do you need the correct amount of coverage in place but, on workmen’s comp specifically, adjustments are painful. We once had an agent who swooped in claiming he could save us a lot of money over our renewal. What we later learned was that he completely ignored our payroll projections. Instead, he based our workmen’s comp off previous years’ numbers, assuming they would be relatively stable. Unfortunately for us, we were in the middle of a growth spurt. 

Our blind trust — and not checking in on the details of our plan — cost us a $20,000 policy adjustment at the end of the year. The note was due immediately, and we didn’t have the money. 

It is the agent’s responsibility to write a policy that fits your business, but it is your responsibility to check their work. To do this, commit to a basic understanding of the industry. The terminology is confusing. What the heck is an experience modification rate, anyhow? You don’t need to understand the fancy math that goes into it, but you need to understand they use it to measure risk. You need to understand the factors that influence whether it goes up or down.

Every year when we do our renewal, I feel like I am reentering a master class on insurance. I get frustrated with myself for having to relearn terms I’ve asked about in the past. 

If you don’t understand an umbrella policy, inland marine coverage, or the difference between a deductible and a premium, you need to ask. Embrace your ignorance because the potential consequences are serious. No matter how many questions the agent asks you, they will never know your business the way you do. You must have a strong enough working knowledge of the policy to make an informed decision.

A great agent will have no problem taking the time to make sure you understand your policy. Don’t sign on the dotted line until you do.

About the Author

Anja Smith is managing partner for All Clear Plumbing in Greenville, South Carolina. She can be reached at anja@acpupstate.com.



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