Use the right insurance tool for the job.
By William Atkinson
If you are like most precasters, business insurance options are like tools: Some are required, some you wouldn’t want to live without, and some are nice to have just in case you may need them. And in a very real sense, the various business insurance options are tools of the trade that you can keep in or remove from your business toolbox to suit your needs, and you can even shop around for the best and latest deals from several suppliers.
Workers comp and auto
“There are some statutory requirements for insurance, such as workers’ compensation and commercial auto insurance coverages,” says William V. Reese, CPCU, risk manager and agent/broker with Glenn Goodwin & Associates Insurance Services (www.goodwininsuranceagency.com), Redlands, Calif., and chair of the California Precast Concrete Association’s Safety, Environmental & Health Committee. “Workers’ compensation coverage and limits are mandated by each state. In some states, though, workers’ compensation insurance is voluntary if you have fewer than a certain number of employees.” When considering workers’ compensation insurance, make sure your insurance provider has the ability to provide coverage in all the states where you do business.
For auto insurance, according to Reese, there are three primary criteria for rating. These are the area of operation, the size and weight of the vehicle, and the use of the vehicle.
Property insurance is usually not legally required, but it is virtually necessary. “With property insurance, you want to make sure that all property is insured for the correct value, and that you are using the correct valuations,” says David Parkhurst, CWCA, a commercial agent with Insurance & Benefits Group (www.ibgagent.com). “You should review these annually, especially given the way the real estate market continues to change.”
According to Reese, in terms of property rating, buildings over 15,000 square feet usually have a specific rating assigned by the Insurance Services Office (ISO). The ISO inspects buildings and assigns a rate based on its construction, occupancy, protection class of its location, and adjacent exposures. “Insurance carriers can then use and modify these rates according to their own individual filings for the state,” he adds.
One important type of coverage to consider, which is actually a separate coverage under property insurance, is business interruption insurance, says Parkhurst. “I think this is a very undersold coverage, especially to manufacturers and contractors. It is one of the most important, though, because it protects your profits. If you don’t protect your profits, you could be out of business if you have a loss.” One reason he believes that business interruption coverage is not often sold is that a lot of agents and brokers don’t understand it.
As is the case with property insurance, general liability insurance is not usually legally required, but it is considered almost necessary. “In some markets, general liability is considered to be mandatory, but there really are no legal requirements,” explains Reese. “In most cases, though, a minimum of $1 million in liability coverage is required by anyone with whom a precaster would do work.”
According to Parkhurst, precasters need to make sure they have appropriate general liability limits and umbrella liability limits. “These will often be dictated by contract language in the contracts you have with customers,” he says. “They will also be dictated by your size, sales and financial liabilities.”
According to Reese, general liability rates are assigned by geographic territory and vary by business classification, which is similar to the way workers’ compensation rates are set. What is interesting, though, is that precasters may be classified one way for workers’ compensation, but another way for general liability. According to Reese, the primary classification for precasters for workers’ compensation is Concrete Products Manufacturing, but drivers are assigned to the Building Material Dealers classification. For general liability, though, a number of different classifications may be used. Depending on the type of product, precasters may be categorized as Concrete Products Manufacturing – Non-Stressed, Concrete Products Manufacturing – Pre-Stressed, or even Concrete or Plaster Goods Manufacturing. “In addition, with general liability, insurers don’t charge a premium for drivers, because drivers are covered under the automobile liability portion,” he adds.
Beyond general liability and umbrella liability insurance, there are several other specific types of liability insurance that are worth considering. Among the most popular are employee practices liability insurance (EPLI), directors and officers (D&O), professional, fiduciary, product and premise. “All of these are relevant,” says Sam Bowlby, CWCA, a commercial agent with Insurance & Benefits Group. “Product liability is part of general liability. You should also have premise liability coverage. While most people on your property are your employees and are covered under workers’ compensation, you may have outside people on site, so you need this kind of coverage.”
Business owners policies
Some small businesses have an opportunity to bundle property and liability insurance into a combined coverage called a Business Owners Policy (BOP). Is this a good idea for precasters? Not really. “This is designed for smaller accounts that don’t have a lot of risk, such as retailers and other white collar businesses,” explains Parkhurst. “As such, the policies are generally not common for precasters, which have more risk. In fact, if an insurance company offers this type of policy to you, I would question whether they really know what they’re doing.”
New kid on the block
While it has been extremely popular in Europe for years, receivables insurance coverage has had a tough time making inroads into the North American market until recently. According to Bowlby, the coverage is very affordable. “The cost is between 3 percent and 5 percent of what your actual receivables are,” he explains. “This kind of coverage can be especially helpful if you haven’t fully qualified your customers, and especially during these economic times.” Another reason for the slowly increasing popularity of this coverage in the United States and Canada is that, in earlier years, it tended to be available primarily to large corporations. “It is now more available to smaller companies,” says Bowlby.
When looking at your insurance program, there are several steps you should take to make sure you get the best coverage at the best price.
- First and foremost, assess risk. “If you look at risk management as a whole, it is more than just buying insurance,” points out Reese. “It involves managing the risk you have.” Part of this involves determining, with each risk exposure, whether you want to transfer the risk, assume the risk or avoid the risk.
Insurance itself, by definition, is a transfer of risk.
An example of assuming risk is your deductible. The higher the deductible, the more you save. “So the question is how much risk you want to assume,” continues Reese. “Most of our clients have $1,000 deductible on everything, because this is where the premium savings are. If you go with a higher deductible, the premium savings are very small.” As such, according to Reese, the ideal deductible is $1,000 for virtually everything – property, general liability and auto.
One way to avoid a risk is to just not get involved in it. For example, if you manufacture manholes and concrete pipe, you may also be in the business of installing the manholes and pipe. However, according to Reese, manufacturing exposure is significantly different from contracting exposure. “From a broker’s standpoint, it is often easier to find a competitive market for a precaster that has only a manufacturing exposure, and not a contracting exposure,” he says. “The reason is that many insurance companies love to write manufacturing operations, but will not under any circumstances write a contracting or construction exposure.” The solution, then, according to Reese, would be to avoid the construction operation and sub this work out to manhole installers. “This strategy would actually be a combination of risk avoidance and risk transfer,” he adds.
- Operate a safe and vigilant work environment. “Watch your hiring practices and employee selection,” emphasizes Reese. For example, if you are hiring drivers, make sure they have good driving records. “Hiring practices are critical to a successful operation,” he says. “This can reduce workers’ compensation, auto and even general liability.”
You will also want to hire and train supervisors and managers who are accountable for the actions of the employees. In addition, be sure to budget money for training (especially safety training), for safety equipment and for the maintenance of other equipment in order to keep it in safe working order.
- Carefully select agents or brokers and carriers. Agents, of course, sell insurance for only one company. Brokers, on the other hand, sell insurance for a number of different companies.
“You should align yourself with a broker who understands your business and is curious about your business,” suggests Parkhurst. He recommends asking: What type of services do you provide? Good brokers or agents will learn as much as they can about your business and help you with your risk management process. Part of this will be through the loss control services they provide.
Another question to ask: What track record do you have in providing these services?
And a question for a broker in particular (as opposed to an agent): What insurance companies do you work with?
Overall, Parkhurst recommends looking at insurance as a professional service, just as you would look at accounting or your health, and create the same relationship with your broker or agent as you would with your accountant and physician. “Look at insurance as a profession, not as a commodity,” he says. “Develop a relationship with your broker, and let him help you. Don’t just shop price; look for someone who will bring real value to you.”
Bowlby agrees. “Most of our clients end up becoming friends, because we spend so much time with them.”
Insurance best practices in action
One precaster who takes insurance seriously and works hard to get the best coverages at the best prices is Western Precast Concrete (www.westernprecast.com), El Paso, Texas. The company has an “open gate” policy that encourages insurance reps and OSHA to visit as often as they wish.
On the workers’ comp side, the most important key to success is having a good safety director, according to Leo Feuerstein, Western’s secretary/treasurer. “This pays dividends in terms of reduced premiums,” he explains. “Our loss record has been such that, even with increased coverages, our premiums have actually decreased.”
He admits that premiums on other types of insurance are more difficult to control. “It is my understanding that when the stock market is up, premiums decrease, because the insurance companies have their money invested in the market,” he explains. Conversely, when the market is down, premiums tend to increase.
Still, in down markets, there are ways to keep premiums lower, according to Feuerstein. One strategy the company has found effective is to use a broker instead of an agent. “The reason we like a broker is that an agent works for only one company, so all they will sell you is their own products,” he says. “We have been using the same broker for 27 years. He will ‘shop’ our insurance every year with about 10 different markets.”
In fact, this broker “shopping” service is particularly important. “You will usually know who your broker is shopping your insurance to, because a couple of months before you sign, you will have insurance representatives from the different companies coming out to visit your plant,” he continues. If you’re not seeing a number of these representatives, it means your broker is probably not shopping your insurance to many companies.
Western Precast renews in April each year. “This year, starting in January, I began to get visits from representatives from Aetna, Travelers, Hartford, Prudential, CNA and others,” he says. “They spent time talking to our people, including quality control and safety.”
Another way to keep premiums low is to put your best foot forward when insurance representatives visit. “You need to present an entire professional image,” emphasizes Feuerstein. “Housekeeping is No. 1. You want your facility easy to navigate and free of hazards.” This includes a neat and safe fleet of vehicles. The front office must also be professional-looking.
Another way to put your best foot forward for insurance representatives is to create and maintain a professional and informative Web site. “We launched a quarterly employee newsletter a couple of years ago,” he recalls. “It is on our website, and it highlights long-term employees, customers, projects and so on.” Feuerstein received a comment from one insurance representative who said that the newsletter provides a lot of useful information to him (the insurance rep) and ultimately helps Western Precast obtain better rates. “It was originally designed to improve employee morale and customer relations,” states Feuerstein. “It never dawned on me that it would also help us with insurance.”
For a brief introduction into the various types of insurance coverage that your business should consider, visit http://businessinsure.about.com and www.smallbusinessnotes.com/operating/insurance.html.
William Atkinson, Carterville, Ill., is a freelance writer who covers business and safety issues.