Sometimes bad things happen, and when they do, it’s reassuring to have a buffer. Learn about the basics of business insurance, and how you can protect your organization against some common worst-case scenarios.
Risk is inherent to any business, and so are unforeseen calamities – lawsuits, employee injuries, natural disasters, car wrecks, ownership death. It’s important to have a buffer.
Risk is ever-present for Steve Tate, general manager and owner of Culligan of Geneva, in Geneva. His business provides water solutions, including water filtration and bottled water, for homes, businesses and light industrial settings. Every day, Tate’s employees and products are at risk. Equipment could leak, vehicles could crash, employees could get injured lifting heavy items.
Many of these troubles are preventable, but when they do occur, they can be costly to fix. That’s why Tate works closely with his insurance agent, who’s a source of advice in diminishing risk, and a provider of solutions when something arises.
“There are a couple of safety procedures he’s helped us to initiate,” says Tate. “We purchased some equipment to help with heavy lifting, which is a lot of what we do. Our new stair lift has helped us to reduce our exposure to risk.”
Insurance isn’t always top of mind for business owners, but it’s an important part of any budget. In Illinois, some forms of insurance are required, while others are simply helpful, for avoiding problems down the road. Why does your business need insurance? Because bad things happen, and sometimes those bad things can take down a company.
“As a business owner, you have a very large investment, and you want to protect your assets,” says Mike Leach, principal and agent at Langan, Haeger, Vincent & Born, in Wheaton. “If certain events happen that you haven’t insured against, you can lose everything and go out of business.”
In general, a few types of insurance are useful to most businesses: general liability, property, automotive, business income and workers compensation to cover the basics. Then, there are helpful additional coverages, such as professional liability, in case an employee is sued for a mistake they make in the professional services provided to a client.
Ordinance or law coverage protects a building owner against additional costs needed to meet new building codes when rebuilding after a loss.
“If you own an older building that doesn’t have a sprinkler system, local building ordinances may change and, for instance, require the installation of a new sprinkler system when the building is rebuilt,” says Leach. “If you don’t have ordinance or law coverage, the building owner will be responsible for the additional cost to install the sprinkler system, which can be quite substantial.”
Business income insurance helps to keep a business operating after a catastrophe. “Let’s say there’s a fire and a total loss to my business,” says Leach. “I have the coverage in place to rebuild the building and replace my business contents in the building, but that could take 18 months or more. Meanwhile, I still have customers to serve, bills to pay, loans to satisfy, taxes to pay, and employees who I want to retain and have paid. Without business income insurance to cover those expenses, I won’t be able to stay in business.”
For companies operating in Illinois, workers’ compensation insurance is a must. This coverage protects both the business and the employee in case of injury.
“If someone gets hurt on the job, the insurance company pays the workers’ compensation claim, which basically deletes the ability of the injured to sue based on negligence,” says Tom Graceffa, a representative for COUNTRY Financial, in Rolling Meadows. “It’s a replacement of their wages, and it protects you against lawsuits.”
Insurance isn’t a one-size-fits-all product, so companies such as COUNTRY offer multiple packages suited to different industries. A beautician’s package, for example, will offer different coverage at different rates than the auto mechanic’s package.
“You might have furs around the store – you’re not going to write that for an auto body shop,” says Graceffa. “Or, you might have jewelry, fine art, things like that which are more likely to be in a salon than another business. And then, we’ll include some things that appear in many other policies, such as computer fraud, or brands and labels, if you carry certain types of products.”
Gordon Hard, president of Valley Insurance in Geneva, can connect his client with policies from several major carriers. As an independent agent, he can evaluate which carriers are more inclined to support someone in your industry. Before he can connect a client with a package, though, he has to know that business’ needs. Consider a hypothetical restaurant.
“Are they a tenant or building owner, because you have to address the property needs,” Hard asks. “Because they sell a food product, they would need product liability, in case someone becomes ill from eating. If someone slips and falls in the restaurant, you need liability to cover their fall. You have people working in the kitchen, so let’s say the chef burns himself while cooking, or cuts himself with a knife while cutting meats. You would cover that through workers’ compensation.”
Supposing that restaurant offers catering, an auto insurance policy may apply to the delivery vehicle, while additional product insurance could protect the food inside.
“A lot of things aren’t standard – they’re optional,” says Hard. “That business owner is going to have to determine how much they want to self-insure.”
A Great Rate
Tate, of Culligan Geneva, considers several factors when reviewing his insurance rate. Price, though, is his first priority. Assuming someone wants to insure his business, the rate depends upon a series of criteria.
First, both an underwriter and an agent examine the business location. Is it in a newer or older property, and is it well-maintained? Does a fire barrier protect it from the business next door? Is it located close to water or a busy road?
Then, underwriters consider workplace safety. Is the business following federal work safety guidelines, and encouraging appropriate behavior at the workplace? How often does the business file insurance claims, or experience employee injuries?
“It’s all of the little things a business owner does to help lower their exposure to losses that, if done properly, can help a business owner to obtain the most competitive rate,” says Leach.
Insurance companies want to support someone who’s a good risk. Clients who take unnecessary risks are less likely to receive favorable rates.
“When we write businesses, we look at their loss history,” says Graceffa. “Let’s say you’re not running a tight ship and you’re a machine shop – maybe you’ve had five people cut their fingers off in the past five years. We might not give you a rate, because you’re not doing enough to keep your place safe and your employees safe. If you’re not being smart about what you’re doing, we don’t want to support what we know is a guaranteed loss.”
Because your claims affect your rates, Hard encourages clients to reduce their number and frequency of claims, paying out of pocket when possible. More importantly, he encourages clients to practice good loss control – in other words, proactively avoiding exposure to loss.
“Loss control is an excellent way to manage risk against the chance of a loss,” says Hard. “Any loss that causes an interruption to your business is an indirect cost to your business. So, anything you can do from a loss control standpoint to help reduce exposure is going to benefit you.”
Posters and bulletins provide a constant reminder of safe behavior. Safety tools, such as goggles, protect employees. Hard recommends having periodic electrical inspections, minimizing the use of extension cords, and keeping good housekeeping practices – storing flammables away from the mechanical room, for instance. More importantly, Hard encourages companies to maintain a stable workforce, where employee turnover is low.
“When you have lots of turnover, you tend to see workers’ compensation affected, and the claims start to go up,” Hard explains. “These new employees aren’t as familiar with the operation or the machinery as your experienced employees. Usually, high turnover leads to insurance losses.”
Simple preventions are often easy, but some businesses refuse even these.
“If I don’t see a clear sign that that prospective client is taking certain steps to reduce their risk of loss, then maybe I don’t want to make a submission to an insurance company,” Hard says.
Whenever Hard offers an insurance quote, the independent agent presents multiple solutions from several big-name insurance companies. Each policy looks different, so it’s up to the client to decide what matters most.
“Let’s say that Company A has a certain price,” Hard says. “Company B has a higher price, but it offers loss control people who will help that business owner. And, let’s say that the coverage offered by Company A isn’t as broad as Company C. Some business owners want bare bones, but others want more options.”
Each company offers different deductibles, premiums and products. How, then, do you get an accurate comparison of what’s inside? Begin by separating the basics from the add-ons.
“You’re going to receive different packages from each company, but really what you’re looking at, apples-to-apples, is the liability, your personal and property protection, your business property and protection, and your workers’ compensation,” says Graceffa. “Anything after that just sweetens the deal, by adding extra coverages personalized to your business.”
Also, pay attention to which markets an agency covers – not all insurers support all industries. Graceffa, for example, covers professional, automotive and agricultural, among several others. Hard focuses on service businesses, such as investment firms, janitors, contractors and manufacturing. Leach covers many industries, but has extensive experience with municipalities, manufacturing, construction and nonprofits.
Before approaching an insurance agent, business owners should have a good idea of their exposures and a list of what needs to be covered.
“If your business is new, the business owner and their agent will develop coverage specifications, which will be used by the insurance carriers to issue their quotations,” says Leach. “These specifications will be the basis you’ll use again next year at renewal. You’ll work with those specifications, and then you can make changes to coverage and policy limits to take into account changes that have occurred in your business since the last renewal. Talk with your agent to make sure any changes in your operation are addressed and properly covered.”
Preparing a quote takes time, whether it’s for a new and untested business or an existing business seeking a policy renewal. Leach recommends seeking quotes from multiple agents, allowing between 90 and 120 days to finish.
“You want to give yourself time to get the data, schedule any inspections that need to be done, and work with the underwriters who are going to give you a quote,” he says.
While determining your next insurance rate, it’s also an appropriate time to re-evaluate your deductible, that is, how much you’re willing to invest in a claim before the insurance company pitches in.
“You have to weigh what you want to absorb, how much reduction in premium you will have with a higher deductible, and whether that’s worth it to you,” says Hard. “Remember, that’s a per loss deductible. Every time you have a property loss, you have a deductible. If you have a lot of frequency on a $2,500 policy, then every time, you have to meet that deductible before the carrier pays out. That becomes a budget item.”
In the event that your company or an employee does make a claim, be prepared for a thorough investigation, especially if it’s a large claim. Insurance companies won’t pay out until they’re satisfied that a claim is legitimate.
“I know a story of a guy who tried to say that he slipped and fell and hurt his knee,” says Graceffa. “It turns out he was playing hockey or something in the hallway, and there was videotape of it. Of course we’re going to audit you on the claim, and we didn’t pay out for that claim. Don’t lie to your insurance company – we’ll find out.”
Benefits: The Other Risk Protector
Insurance plans will protect your business against possible risks, but it’s also important to protect your employees, by providing benefits. Many businesses choose to offer some form of benefits, whether it’s retirement plans, disability and life coverage, or health coverage. Group plans provided through your business may reduce the cost of participation for employees.
“Work with an agent who has experience and expertise to explain to you what your options are and how the various carriers compare,” explains Leach, whose firm specializes in employee benefits. “Your health plan may include certain hospital and doctor networks, so understand how utilizing that network will affect your employees when their claims are processed.”
Soon, the Affordable Care Act will require many employers to offer health insurance to their employees. The law requires employers with 100 or more employees to provide health insurance beginning in 2015. The following year, businesses with 50 to 99 employees also will be required to offer health insurance. There is no coverage requirement for firms with fewer than 50 employees. The law is still changing, so Leach suggests talking with your agent and using resources such as a trade association, to understand what your business needs to do to stay in compliance.
Ultimately, employee benefits provide an attractive recruitment tool for new employees, says Hard. It tells them that you’re invested in their success, and gives them incentive to invest in your company. Remember, lower employee turnover translates into lower overall insurance rates.
“They’re viewing this company from a benefit standpoint,” he says. “Maybe they see this as another step up their careers, but they’re also looking at this company and wondering whether it’s a strong, viable company, or if it’s going to be there for six months longer and then go out of business.”
Not every insurance company is worth its weight. Some maintain a reputation for offering only minimal coverage, or for avoiding any payment on claims. Agents with a big-name firm, and independent agents with a strong community reputation, stand behind their clients.
At direct-writing companies such as COUNTRY Financial, agents like Graceffa are thoroughly vetted before being hired, and they’re constantly double-checked by a team of corporate underwriters.
“If I should have done something and didn’t, we’ll make sure it gets done,” Graceffa says. “Definitely, bigger insurance companies make sure they take care of their clients. That’s what sets apart any good company, is customer service. Our entire firm – a very large firm – had only eight complaints last year, and those are all against individual agents.”
As an independent agent, Hard stands behind the Geneva/Batavia/St. Charles area, where he’s worked since 1978. His agency is linked with multiple big-name insurers, such as Travelers, Progressive, MetLife and The Hartford, and he has been an active member of the local Chamber of Commerce.
“As an independent agency, we have a multiple number of companies we can try to place a business through, whether it might be a shoe store or a restaurant,” he says. “Because of the number of different companies we have, one insurer may want that retail shoe store, but they’re not as competitive in writing a restaurant. So, we can find a market that will write that restaurant and do so competitively.”
For Leach, the relationship between an agent and client is an essential part of obtaining insurance. Not only can an agent find a competitive product, but that agent can remain a constant resource while dealing with insurance claims and potentially risky endeavors.
“Work with an individual who has experience, a solid reputation and strong ethical values,” says Leach, who’s been an agent since 1981. “Get references from friends, mentors, business associates and the local Chamber of Commerce. They’ll point you toward someone who has a solid reputation for your business.”
Tate, whose family launched the Culligan of Geneva franchise in 1945, has found a reliable relationship with Hard, whom he met through the local Chamber of Commerce. For nearly 17 years, Hard has provided the business owner with several new quotes each year, so they can compare rates and seek ways to reduce loss.
With Hard’s help, Tate has instituted new safety procedures to keep employees safe when lifting heavy equipment. Tate is also set to begin new inspection procedures, to better ensure a proper installation.
Situations do occasionally happen, but when they do, the agent has been quick to help his client.
“When you’re talking about insuring your business, it’s really important,” says Tate. “I can’t think of anything we could have done that we would have lost the business over, but when you have an agent who makes sure that those things don’t happen, it’s really valuable.”