10 Things You Should Know About Insurance

1. Reduce your Disability Costs by 50%: 2 independent studies have shown that firms can reduce the cost of disability payments by 50%– for both workers compensation disability and non-occupational disability – by involving the direct supervisor of the injured employee in that lost-time employee’s recovery.

2. Business Interruption Limits: these are probably the most important limits on any of your insurance policies. Studies have shown that business interruption limits are often dramatically insufficient:

  1. low limits alone can cause a problem in resuming operations quickly and at the same level as just before the loss.
  2. after a business interruption loss, there are usually significant indirect costs that are not insurable.
  3. several reports have pointed out that it is not unusual for  businesses to fail to ever recover from a business interruption loss.

3. Workers Compensation: Focus on the Experience Modification often distracts from the key driver of cost for most insureds: current loss reserves for the past 4 years of losses.

Driving down these reserves just before renewal is for most insureds more important than driving down the reserves prior to the Unit Statistical filing.  Still, most insureds and brokers focus on the earlier date.

4. Directors & Officers: Unlike general liability forms, which are often very similar to each other, policy forms for D&O coverage vary significantly from one insurance company to another, and one insured to another. Many endorsements to add coverage are often missing from the typical policy. This highly technical area is prone to mistakes by even the largest, most experienced D&O brokerage firms.

5. Fidelity Coverage: Limits of coverage must contemplate the possibility that a single loss can take place with one(or more) employees over several years time. The single limit for employee dishonesty coverage on your policy must be sufficient to cover several acts of theft, by the same person(s), deemed to be one “loss”.

6. Claim Denials: Have your attorney review any claim denial before accepting it from the insurance company. Claims adjusters are usually very busy, some are inexperienced, and some claims are complex, triggering several coverage issues at once. And, insurance companies can be cynical at times in their approach to claim denials, hoping for a quick resolution.

7. Save your Policies forever: Brokers usually throw policies away after a few years, and the burden of proof lies with the insured to prove that coverage existed with a particular insurance company at a particular time.

Since most policies are “occurrence” forms, a claim from several years ago against another party may show up on your doorstep in a long-delayed cross complaint.  Also, new theories of negligence(and insurance coverage) develop over time.

8. Meet your underwriter: This can save your company significant amounts of money over time. Specifically, get to know the most senior underwriting officer you can at the insurance company(s) that charge you the most. Their comfort level with you and your company should translate directly into lower premium.

9. Actuarial insurance rates: These are based on surprisingly few common features for similar businesses.  For example, in workers compensation , there is no actuarial consideration of such factors as:  marital status of claimants, education of your workforce, who the treating physician is, the impact of various safety incentive plans, number of years experience of the owners/managers of the business, etc.

The point: your risk is unique.  Actuarial models are reliable for large groups of businesses.  They have little to do with your individual company’s cost of risk (and pricing).

10. Read your policies: No, don’t worry, not the entire policy. However, if you ever have a large claim, having spent 15 minutes each year reviewing policies is likely to save you an enormous amount of time and money.

  1. Forms: find the schedule of forms that make up the policy.  This is usually in the first few pages of the policy. Then, make sure you have all of the forms. If not, ask your broker for the missing forms.
  2. Typewritten entries: anything typed by the insurance company specifically for your risk should be reviewed for accuracy and appropriateness.
  3. Endorsements: Read the smaller one or 2 page forms.  These often contain special limitations and exclusions.

Finally, remember that policy checking in most brokerage firms is done by support staff. If the policy is issued incorrectly, relying after a loss on a broker’s memory or notes on coverage will be an invitation to a dispute.