Tailoring an insurance program to minimize risk
Proper insurance coverage is an essential component of the entrepreneurial process.
“Your insurance agent is just as important as your attorney and accountant,” says Larry Meyers, managing partner of property casualty, Meyers Glaros Group, which has offices in Schererville and Valparaiso. “All provide professional advice to help protect you and your business assets.”
In general, most businesses will need property, commercial general liability, workers’ compensation and business automobile components to their policies. No matter the type of business, an owner has property that needs to be protected, which includes everything from office space to tools of that particular trade.
“Even though there are diverse businesses out there, they all have property to protect against loss,” Meyers says. “From professionals, such as doctors and lawyers, to restaurants to contractors, they have office furniture, inventory or equipment that needs to be protected against fire, theft or whatever.”
Entrepreneurs also need to have liability insurance across all businesses, according to Mark Bates, president of Pinnacle Insurance Group of Indiana in Crown Point.
“For instance, an engineering firm will need professional liability for any errors or omissions related to their professional services,” says Bates.
Meyers adds that all business owners have liability exposure, whether it’s related to their property or end product, such as food items.
“If you have an office and someone comes in and trips and bangs his or her head, you need to protect yourself against that,” he says. “In supermarkets, thousands are going in and out and someone could slip and fall. Retail stores have the same exposures.”
Workers’ compensation coverage is necessary if an entrepreneur has employees as part of the business. This is dictated by the legislative process and any insurance agent in Indiana must follow the statute to the letter.
Finally, just as individuals have to insure their personal vehicles, any business owners who have vehicles as part of the operation, must insure those as well.
Building on the base foundation of general insurance, entrepreneurs will need to have any policies that are related to their field and unique to their businesses, says David Walters, principal and commercial insurance practice leader at Gibson, which has offices in South Bend, Plymouth, Indianapolis, Fort Wayne and Elkhart.
“Based on an organization’s unique exposures, size, scope of work and contractual requirements, additional policies are available for purchase,” Walters says.
Depending on the type of business, Walters cites the possible need for additional coverages, such as fiduciary liability, directors’ and officers’ liability, professional liability, privacy and data protection, environmental/pollution liability, travel accident coverage, volunteer accident or credit risk/accounts receivable insurance.
Meyers says these types of more specialized coverages are not included under standard general liability policies. Specific professional liability policies are distinctive to an entrepreneur’s role as a doctor, lawyer, accountant, real estate agent or architect.
“Even insurance agents have errors and omissions coverage,” Meyers says. “If I or my staff doesn’t get the job done and a client wasn’t properly covered, that’s on me and my office.”
New to the business world
As entrepreneurs begin the business-building process, they should connect with an insurance agent as a starting point.
“Selecting an insurance agent can be quite overwhelming,” Bates says. “If an entrepreneur does not have an established relationship with an agent/broker, he or she should contact other business owners to see who insures their business.”
He recommends requesting an appointment to learn about the services offered and the agent’s expertise.
“It is also helpful to have a business plan to share with the agent, so he or she can understand the model and pro-forma to grow the business,” he says.
“You should feel comfortable with the relationship,” Meyers adds. “Talk to peers about their agents. Have a conversation with two or three recommended agents and ask, ‘Do you have other businesses like this that you insure?’ You would rather have an agent with some experience and not have them learning on your business.
“You want to partner with an agent that is going to service’ the account/insurance needs and not just ‘sell’ you insurance policies.”
Walters says it’s important to interview a potential advisor to see how he or she works.
“Find out about the team that will be assigned to work with you and what qualifies them to do so,” he says. “Ask about tools, resources, consulting capabilities and key carrier relationships that they will approach on your behalf.
“Long story short, find someone that a) you trust and b) delivers the most robust value proposition for the commission dollars or consulting fees they are earning.”
Establishing the connection
Once an agent is selected and policies are determined, entrepreneurs need to work with their advisors on an ongoing basis. Depending on the size of the business, meetings may be needed once a year or every quarter.
“You and your agent should discuss expectations of service and ongoing insurance needs,” Meyers says. “Some clients I speak to a couple of times a year and then I have contractors who I have almost daily conversations with as there is always something going on.”
He adds that business inventory is an area owners tend to become under-insured on over time as they add items and don’t keep their agents updated.
“If you are just adding a computer or desk at a time, you may say, ‘I’m OK,’ but over a five-period period, it adds up,” Meyers says. “What we do is remind clients if you made a major purchase, we need to know about it and every once in a while, do a quick review.”
Bates also says entrepreneurs need to keep their agents informed of any increased/decreased payrolls and sales that can potentially impact workers’ compensation, as these are subject to audit at the end of the policy period.
“Keeping current on payroll and sales can greatly reduce the burden of a large premium due after an audit,” he says. “Your agent or broker should be in your inner circle of key advisors that includes your CPA and attorney.”
A partnership creates a relationship that is important to the business’s long-term success.
“Businesses don’t typically change their accountant or attorney every year,” Meyers says. “Your insurance agent is no different; build a long-standing relationship.”
Meyers says a strong connection with an insurance agent can be beneficial to business owners who may be facing some challenges.
“If you had a string of losses, but you have been with us for 8 or 10 years, we will see it as a bump in the road that we can overcome,” Meyers says.
“Looking for the ‘cheapest’ price is a bad way to look at your insurance package,” Meyers says. “It does you no good to have saved money on your premium and then, if and when you have a loss, you don’t have the proper coverage for the loss.”
Insurance is designed to protect entrepreneurs against catastrophe, he adds.
“You have to be conscious of the price, but you have to make sure the coverage fits your needs,” he says.
Bates says some entrepreneurs perceive insurance as the same across the board.
“No two policy contracts are identical,” Bates says. “This could come back to haunt the business owner at the time of a claim.”
Walters sees business leaders making mistakes in the process of selecting an agent when they allow multiple firms to quote a policy.
“Quoting/bidding forces an advisor to make a sale as opposed to doing what is best for your organization,” he says. “Commercial insurance policies can be complex and very few business leaders truly have the knowledge, experience or time to adequately compare policies. Bidding/quoting forces a business leader to become an insurance expert in order to truly compare one proposal to another.
“There is no such thing as ‘apples to apples’ in the insurance world. There is only ‘apples to oranges.’ Even if limits, sub-limits, exposures and coverage parts appear to be identical, there are still hundreds or even thousands of pages of policies that include exclusions, endorsements, conditions and coverage triggers that make it impossible to compare ‘apples to apples.’”
The right fit
When an agent is independent, that allows him or her to represent national and regional insurers and offer more choices to potential clients.
“Understanding their business, asking probing questions and a client’s commitment to embrace risk management allows us to custom-tailor an insurance/risk management program to meet their needs,” Bates says.
An agent’s industry knowledge is a foundation for the custom-tailored policy.
“Once you’ve found the right advisor, use their industry knowledge to help you benchmark limits and coverages against other organizations who are of similar size and within the same or similar industry,” Walters says. “Insurance is complex. It takes the right advisor to ensure you’ve got it right.”
Agents must also assess an entrepreneur’s risk and how best to manage it.
“It all starts with risk management. If an organization truly wants to minimize the cost of insurance, while maximizing the coverage terms afforded to them, a defined risk management process is critical,” Walters says. “Nail this, and your marketability will increase drastically. Increased marketability drives carrier competition, which in turn results in better coverage terms and lower, more stable, insurance costs.”