Feature Stories - July 2000

BUSINESS INSURANCE

Preparedness Means Protection

by Cindie Geddes

In today's highly litigious society, insurance for a business is not a luxury but a necessity. Not having the proper insurance could lead to fines, lawsuits, loss of time, loss of employees, loss of profits, even loss of the entire company. But what insurance does a business need? How does each company know what policy is right for its needs? The answers, like those to so many questions, lie in experts and education.

What specific insurance coverage a business needs depends principally on the type of business. But according to Peggy Willard-Ross, Insurance Examiner for the Nevada Division of Insurance, all companies should have commercial general liability to assure protection of third parties. This may take the form of a business owner's policy, which includes some main parts of the general liability coverage plus property coverage (including medical for injuries sustained on the company's property). This policy allows the business owner to fit together policy pieces that fit that company's particular exposures.

If the company has employees, it will need employee liability insurance (workers compensation). If a business offers employee programs such as retirement, employers benefit insurance is needed to satisfy federal requirements that the money a business owner withholds from employees goes to the proper agency or company. If vehicles are rented or leased, business non-owned auto insurance is handy, as is standard auto insurance for owned vehicles.

Optional benefits offered to employees may require health, dental, vision, mental health insurance or any combination of these. Tim Woodruff, Account Executive at The Leavitt Insurance Agency, says it is important to take into account the makeup of a business. Additional policies which may be needed include: coverage for equipment away from the business premises, employment practice liability (protecting against discrimination, wrongful termination, and sexual harassment suits), and additional limits of liability (an umbrella policy).

Willard-Ross says it is important for a company to look at potential exposures in detail and do a risk assessment before even approaching an insurance agent or broker. Business owners need to look at (or have someone else look at) the whole operation, exposure to other people, safety of the building, and how the operations work. This is risk management. For example: if there is a fire or flood, can the data in a computer be retrieved? A risk management expert may recommend that copies of vital data or documents be stored off site, to lessen the impact of such an occurrence. Risk management allows a business owner to take matters into his or her own hands and stop a lot of exposures before anything happens. It includes keeping back-ups of data and walking through the site every six months identifying potential hazards (even those as small as a frayed carpet). Willard-Ross says the most important thing business owners need to do is educate themselves about insurance. "It has been assumed that a business owner is going to be more educated," she says, "but many times they are not." She suggests an owner may even want to take a basic risk management course. A good insurance agent or broker will walk through the business with the owner and can identify steps to minimize exposures. He or she can also provide suggestions on how to insure the remaining exposures so the business is not at risk of a lawsuit.

When choosing an insurance carrier (or carriers), it is important to shop around.

Willard-Ross suggests taking referrals from other people in a similar business and asking friends who they use. Be sure to ask if they are happy with their carrier, whether or not they've had claims settled, and if the settlements seemed fair. Talk to several different agents and brokers.

Woodruff says that the most important components of an insurance company are financial strength and size. "Outside of that," he says, "insurance companies are becoming interchangeable for coverage (except in construction – you need to be careful with the exclusions there). The bells and whistles of the policies are basically the same."

George Lonas, Senior Vice President of Employers Insurance Company of Nevada, agrees, noting that a company's financial stability says a lot about its ability to pay future claims. But service is important too. There are a lot of "niche" carriers who may specialize in the needs of a particular type of business. Such a company's familiarity with these specialized needs can lead to quicker claims filing and settlements as well as a stronger grasp of risks and risk management associated with a particular industry. But when looking at niche markets, a business owner should make sure the insurance carrier is committed to that niche, that they have been involved with it for a few years and will not be pulling out soon.

Pricing is also important and can be affected by the agent's or broker's thoroughness.

The best insurance people offer a thorough review of corporate needs to ensure complete coverage, but without overlap or unnecessary components. The business owner should not be too hurried in trying to get to the bottom line, however. Time needs to be spent in making sure that all the insurance needs are met.

Willard-Ross points out that too many companies do not take the time to get educated on their policies, and so end up with incomplete or duplicated coverage or coverage the business simply does not need. A business owner should read the policy thoroughly and be sure he or she understands it completely. The time to ask questions is during the signing phase, not the claiming phase. Waiting for the water to rise above knee-level before asking about flood insurance is not a sound business policy.

Another common mistake is under-reporting in hopes of saving money. Insurance is not the place to scrimp. Willard-Ross says, "Some businesses think 'if I report all my exposures at 100%, it's going to cost too much,' so they under-report inventory or income, and then when they have a claim they only get a percentage of what they should have gotten. Trying to be cheap often costs them."

Once an agent or broker is selected, the company should not give up control. Even if a business owner is happy with an insurance company, it can pay to shop around. "Our business is a relationship business," says Woodruff, "but every few years they should shop their program around with other agents to see what is out there. Mistakes are caught, coverage is improved and the atmosphere of competition is healthy. It sharpens our skills."

Competition is the name of the game. Even worker's compensation has had its skills sharpened lately, with the number of carriers leaping from one to over 230 in the last year, according to Lonas. During that first year of competition, all insurance companies were mandated by the State Legislature to charge the same rates. That restriction ended July 1, 2000. After that date, a 15% deviation from the standard rate is allowed, giving insurance companies more room to compete by allowing them to bid up to 15% higher or lower than one another. In 2002, open ratings begin and workers comp becomes a truly free market. The Insurance Commissioner recently implemented a rate increase across the board for policies (averaging about 6.5%), so overall costs have gone up, but it is industry-specific, with some industries getting a decrease, some an increase.

"Competition always brings quality," says Lonas. "It brings quality products and services to employers." Willard-Ross also points out the benefits of the new freedom. "There are a lot more choices," she says, "a lot more freedom." Employees have always been concerned with access to care, and there is debate on whether or not access has improved with competition. Willard-Ross thinks it probably has, with broader access and more selection in the doctors that can be chosen. Lonas says it depends entirely on which provider network is chosen. As the market continues to open and competition increases, the answers may become more clear.

Woodruff says the competition has greatly improved the worker's comp system. More services are offered, more quality people have been hired. "Overall," he says, "it is a very positive situation for the state of Nevada."