INSURANCE 101: The Three C’s

By Mike Russell, Federated Insurance

I’m in the market for a car, so I went to my local auto dealer. I was greeted by a fresh-faced salesman.

"Yep. Looking for a new car. What’s one cost?"

"Oh, maybe a red one? Can you give me a price?"

The salesman asked me to hold on, and came back with his sales manager.

"Yep, a red one. What’s one cost?"

"Well, that’s impressive, fellas. So it shouldn’t be too hard to find a red one, right?"

(Blank look...)

"Uh, listen, I’m impressed with all your cars. But, I’m a busy guy and what I really want is the price of a red car. Here’s my number. Call with a price and I’ll make my decision on Monday. Sharpen the pencil, boys, because I’m getting prices from two other dealers and I’m gonna take the cheapest one."

 

We probably all agree this is not a realistic way to buy a car. And yet, this is the approach many business owners take when shopping for their business protection coverage. Most people would test drive a car and maybe even kick the tires to make sure everything works. Yet, they do not test drive their business insurance. Instead, they purchase coverage "as is" and hope it will work when they need it. They don’t want to know if it will go from 0 to 60 in 4.9 seconds.

 

When reviewing your business insurance needs, there are three primary considerations every owner should take into account. I call them the Three C’s: cost, coverage, and claims. They are all equally important to the decision matrix.

 

Certainly, cost is and should be a part of your insurance and risk management strategy. But, cost matters only in context with the coverage and services provided. Cost by itself is one of the few "known" facts an owner considers. Often, it winds up being the deciding factor. This can be a dangerous and short-sighted tactic to investing in a business protection plan.

 

It is better to look at cost as a percent of total receipts. For example, let’s say a business with $10 million in receipts receives two insurance proposals: Company A’s is $90,000; Company B’s is $105,000.

• Simple math tells us Company B is 16 percent higher. This is where most business owners stop their analysis.
• As a percent of receipts, however, the difference is .0015 percent. That’s a rounding error for a business of any size!

Analyzing cost as part of the bigger picture of operating expense helps put it in perspective, and forces the decision-making process to shift to the other two primary considerations : coverage and claims.

 

When the thunderstorms are building or the hurricane is bearing down, business owners aren’t running to their neighbors bragging that they saved 15 percent on their insurance. They are just hoping the policies they have will cover resulting damage.

 

With more than 400 different forms and endorsements that either add or delete coverage from basic policies, it’s just as important to know what is covered as what isn’t.

 

Work with an insurance provider that specializes in your type of business. Most industries have special programming needs that require specific endorsements. Ask the agent about the "what ifs." You should be concerned if he or she can’t articulate the company’s coverage advantages for the unique risks you face. Ask about their familiarity insuring your type of business.

 

You also need to consider regulatory or legal climates as you round out your package. Cyber liability, employment-related practices liability, and pollution coverage are examples of policies that cover exposures excluded in basic coverage forms.

 

Risk management resources are also an extension of the coverage offered. What does the insurance carrier offer to help you mitigate risk?

• Online resources, such as safety videos and training modules
• Hiring resources, such as background checks, drug testing, Motor Vehicle Records, etc.
• Site inspections, to help identify hazards
• Return to work and modified duty programs

The list goes on. Before you decide to "sign on the dotted line," understand clearly what is available and at what cost.

 

Often overlooked, understanding how your claims will be handled is critical. This is where you find out if your provider will get you back up and running—the "0 to 60 in 4.9." When the fire alarm goes off, knowing "who" will take care of you and "how" you will be taken care of is critical to your business’s future.

 

If, as discussed previously, you have auditioned companies that specialize in your business, ask the agents about claims handling. Most have never been asked this question, so you may get a "deer in the headlights" reaction. A good agent should be able to give you the contact information of the claims manager for your area.

 

Call the claims manager, and gauge for yourself the kind of response you might get when you have a problem. Ask how YOUR type of business is handled. It should be a deal breaker if the agent can’t articulate the "who" and "how" of claims handling, or if the company or representatives are not familiar with what you do and the equipment you use.

 

 

Cost, coverage, claims. Understanding the role each plays will help you select the right partner to work with you to design an effective risk management and insurance protection plan.