What can you expect when you decide it’s time look at buying business insurance? There are 3 Common Traps with Business Insurance and I’ll be going over today how to avoid them. There are a ton of insurance agents out there and we all kind of look alike. Knowing what these traps are and how to avoid them will get you on the right path.
This article is the third in a multi-part series examining the steps businesses have when evaluating and buying insurance. By knowing your options and what a typical process looks like, you’ll know what to expect and can make the most of your time.
Part One: ‘Why You Buy’ Should Inform ‘How You Buy’
Part Two: What to Expect When Buying Business Insurance
The 3 Common Traps with Business Insurance
When you buy business insurance, you essentially have two options: buy it yourself online or work with an agent to place your coverage after approaching one or more insurance carriers. The traps are typically all the same, but here’s the catch – if you work with an agent, make sure THEY don’t fall into these traps.
Misrepresentation
Fraud is an intentional or deliberate act that get’s someone to enter into a contract that they wouldn’t have had they known the truth. Committing insurance fraud has consequences that range from denial of coverage to actual imprisonment.
Misrepresentation is fraud’s cousin. It’s an unintentional act that typically has the same result – a party enters into a contract that they wouldn’t have had they known the facts. Even if you have unintentionally misrepresented yourself to an insurance carrier, it can still result in being denied coverage.
Misrepresentation is a trap that is easy to fall into when it comes to placing your insurance. In classifying the operations of your business, we use a combination of SIC codes and specific codes developed for insurance purposes. Let’s look at a common real-life example:
ABC Insurance Company likes to write policies for residential carpenters. Residential carpenters often put additions onto homes, which includes putting on a roof. ABC Insurance Company understands and is fine with this; however, they do not write insurance for contractors that do roofing-only jobs.
XYZ Carpentry applies for coverage with ABC Insurance Company as a residential carpenter. They will occasionally do roofing-only jobs but it’s a small part of their business and they don’t offer that information to their insurance agent. Their insurance agent doesn’t ask and just assumes that they don’t. XYZ Carpentry signs an application that states they don’t do any roofing-only work.
What happens if while on a roofing-only job, a piece of equipment falls off the roof and strikes someone on the head and kills them? ABC Insurance finds out that the job was for roofing only, goes back and looks at the signed application, and denies coverage due to misrepresentation.
How to avoid this trap: be clear about your operations and communicate them clearly with your agent, or with the company you’re applying to online. Failing to disclose part of your operations can result in having coverage excluded.
Read the Policy
Whether you buy the policy yourself online or use an agent, be sure to read the policy for any limitations or exclusions. Yes, the language used is often confusing and there can be sections which seem to deliberately contradict each other. But insurance policies are a legal contract and it’s important to at least have some idea of what’s in there.
Here’s what I’d recommend to a first time policy reader:
- Review the list of policy endorsements. By reading the titles of the endorsements, you can at least get an idea of what they cover.
Some examples might include:- Exclusion: State of NY – you can probably intuit what this one does: excludes coverage for any work done in New York state. If you do work in New York, your policy won’t cover you there.
- Classification Limitation – this is a less easily understood example. In most cases, this endorsement means that if a specific classification is not listed on your policy, there will be no coverage.
- Minimum & Deposit – even for people working in insurance, the title makes little sense. This type of endorsement is relevant to policies that are rated based on things like sales or payroll. It states that if you’re sales or payroll increase you’ll be charged additional premium, but if your sales or payroll decrease there is no reduction in premium. Important to know!
- Ask your Agent
- If you don’t know what something means or how it applies to your policy – ask! And get your answer in writing.
If you are buying your policy online and it doesn’t come with an agent, contact support at the company you’re buying through – and get your answers in writing from someone licensed to offer advice on insurance.
- If you don’t know what something means or how it applies to your policy – ask! And get your answer in writing.
If you don’t know the law and commit a crime, it’s still a crime. The same goes for insurance – failure to recognize a risk doesn’t keep you from suffering the consequences of it.
How to avoid this trap: have your agent educate you about what the policy covers and of any limitations or exclusions you need to be aware of. If you don’t have an agent, get an insurance licensed representative of the company your buying from do the same. Also, read the policy!
Avoid Becoming a Number
A common perception among insurance buyers is that insurance companies think of you as a number. There’s a lot of validity to this perception, especially for small businesses.
But every insurance buyer can avoid becoming a number.
Small Businesses can avoid becoming a number by finding an insurance broker who does two things: develops a relationship with you; and communicates regularly.
If you’re paying less than $20,000 a year in premium to an insurance company, they will most likely see you as a number. But they might not see your broker in the same way. Do you have a broker that will fight for you, negotiate with the insurance company on your behalf, and move your coverage to another carrier for you? If so, you’re not a number. If not, well…
Mid-Market Businesses can avoid becoming a number in a few different ways. First, you want to make sure you’re getting everything in the preceding paragraph. If you’re not getting this, your broker really isn’t earning the commission paid on your policy.
Second, you can avoid being a number by understanding how your broker represents you to the insurance marketplace. Underwriters at insurance companies get all kinds of submissions from insurance agents. The problems that a typically underwriter has when they get submissions from agents include:
- Incomplete Information – they lack the necessary information to make a decision
- Don’t include any story – can your business be adequately represented by 3 words and a bunch of information?
- There’s no business case made for getting to the right pricing
- The broker offers no information on how you’re currently mitigating your risk or what you’re future plans are for doing the same
- Some brokers are simply trying to “block the market” to prevent other brokers from approaching the same insurance company
- Submissions from multiple brokers, often with different information.
When an underwriter actually gets all of this from a broker, it’s pure gold. Your business stands out from the pack in the most positive ways.
How to avoid this trap: when talking to insurance brokers, ask questions:
- Which carriers are you going to approach?
- How do you get me the best insurance premiums?
- How do you present my business to the underwriter?
If you speak with an insurance agent who asks you five questions and then says, I’ll get you a quote, you are a number.
Business Insurance Buying Guide: To Be Continued
I’ll be posting new articles to add to the Business Insurance Buying Guide, so please stay tuned for more information.
You can follow me on LinkedIn here or on Twitter @RyanWStillwell.
If you’re interested in learning more – or just having a conversation about your insurance and risk management programs, please give me a call at (215) 499-5185 or book an appointment with me here: