Risk Education—If you do a Google search for “Myth,” several of the definitions that pop up include gentle phrases, such as “a widely held, but false belief or idea,” “fallacy,” “fabrication,” and “untruth.”
You probably won’t be surprised to see stronger terms like “lie” and “fake news.”
You might possibly disagree with the characterization of “alternative fact.” (I know I did.)
But no matter how you define “Myth,” when you’re talking about the protection of your business, and the thousands of dollars (or hundreds of thousands) you pay out each year for insurance coverage—there’s no room for mistaken beliefs of any kind. You deserve to know the truth.
Here are several “all-too-common” Commercial Insurance Myths—BUSTED by Risk Managers from American Risk Managers, Inc.
1) If You Have Commercial Insurance, Your Business Is Covered For Any Type Of Loss.
Unfortunately, this is not correct. You could have dangerous gaps in your coverage and not be aware of this until you have a denied claim.
You are most certainly an expert in your business field. But you probably don’t have enough knowledge of insurance terms and terminology to ensure that you’ve obtained the correct coverages and set sufficient limits.
And what about conditions, limitations and exclusions? Don’t let the fine print undermine your attempts to safeguard your company from risk.
Have an Independent Risk Management Consultant design an insurance program to fit your company’s specific needs. That’s the best way to protect your business and its assets. (And save money at the same time.)
2) You Can’t Do Anything About Your Workers’ Compensation Insurance Costs.
Untrue. Yes, you are required to have Workers’ Compensation Insurance according to your state’s guidelines.
But there are still several things you can do to help keep your Workers’ Compensation costs as low as possible.
- Promote safety and keep your losses (claims) down. Your premiums are set according to a formula that compares your business and its losses to similar types of businesses and their losses.
- Double-check your payroll amounts and ensure that all figures are reported accurately.
- Double-check the classification codes for your employees. You shouldn’t be paying the same amount for office employees as you do for truck drivers.
3) The Workers’ Compensation Premium Amount You Are Paying Is Not Subject To Change.
Woe unto the company that is surprised by an insurance audit and has their Workers’ Compensation premium costs doubled.
Unfortunately, this happens too often. Sometimes, there are errors made by the company. But in other instances, errors can be made by the auditors.
You are paying an “estimated” amount based on payroll, classification codes and a mysterious Modification Factor.
Get a Risk Manager involved to make sure your audit has no mistakes and your reporting was done correctly. Far too frequently, our staff finds numerous Workers’ Compensation inaccuracies. (And sometimes, a premium audit increase can even be turned into a refund.)
4) You Need To Buy Insurance To Cover The Complete Cost Of Replacing Expensive Assembly-Line Machinery.
Yes, you do need insurance. But no, you don’t need excessive coverages…
For example, if you have five $1 million machines on your production lines, you may think you need $5 million worth of insurance coverage. (This writer did… until her boss set her straight.)
In reality, you could obtain a type of Blanket Policy to cover these machines at a much lower rate than the one you’d pay for regular Property Coverages.
This is another area where a Risk Management Professional can help you save MORE than enough money to cover their fees.
And if your company is big enough to have million dollar machines, your policies probably run in the hundreds-of-thousands-of-dollars-range.
Our Risk Managers usually find at least 25-35% savings for clients of this size. (I’ll let you do the math on that.)
5) I Can Use Higher Deductibles To Help Buy More Insurance Coverage.
Not necessarily. You’ve heard the saying, “Don’t bite off more than you can chew.” That’s certainly an appropriate phrase to describe the dangers of setting deductibles too high.
There are many factors that need to be taken into account when determining appropriate levels of deductibles.
- The services or products you produce;
- The number of employees; and
- Overall company size (and sales).
You also need to consider:
- The size of your insurance premiums. (Small deductible changes won’t make much of a difference if you have huge premiums.)
- The number of losses you’ve had in the last several years. (If your losses are low, then your deductible amount is a type of “self-insurance.”)
- Can you afford to pay out if/when a claim occurs? (Deductible funds must be readily available without putting a strain on your company’s regular cash flow.)
Deductibles are a “mixed bag” when it comes to best policies. Again, here’s a situation where your Independent Risk Management Consultant can help save you a bundle of money OR help save you from a huge and painful blow to your bottom line.
You have multiple policies covering your company—General Liability, Business Interruption, Fleet Coverage, Directors’ & Officers’ Liability, Umbrella Policies, and many more.
Some of your policies should not have deductibles at all.
On the other hand, if you have very low losses and very high premiums, you may be able to save a lot of money on certain deductibles.
But how do you know if these are the same policies that you shouldn’t apply deductibles to?
You need to get an expert opinion. Risk Managers can work with your Insurance Company to negotiate deductibles (and rates and premiums).
And if you do save some money, buying more of the same type of insurance with your deductible savings may not be the best bet.
If you’re already adequately covered, those funds might be better used in another area of your business or to obtain coverages you don’t have yet.
A Risk Manager will check the exposures present in your business and advise you on coverages needed to fill-out your current insurance program.
6) The Company That Is Doing Some Sub-Contracting For Our Business Is Covered By Their Own Insurance, So Our Company Is Safe.
Not good enough. You still need to protect your company against loss EVEN IF the third-party or outside contractor working on your company’s behalf has insurance.
Any outside parties doing work anywhere for your company—on your premises or elsewhere—should first sign a contract absolving your company of any responsibility for negligence or accidents.
These types of contracts should be carefully worded (get your Risk Manager to check the language) and then signed and dated before any work begins.
Other protective steps include:
- Alert the subcontractor to the amount of insurance needed to do business with your company. (For example, $1 million. If they only have $500,000, they’ll have to obtain more insurance.)
- Have the subcontractor provide you with the Certificate of Insurance proving they have the adequate coverage limits.
- Have the subcontractor add your company as an “Additional Insured” on their insurance program.
7) The Big Print Gives It To You And The Little Print Takes It Away.
False. Insurance Policies are contracts—no matter the print size—designed to meet future obligations on your behalf.
These types of contracts must also be drawn up so as to pass rigorous reviews from various regulatory departments.
Insurance Contracts are also based on actuarial tables. These tables tell underwriters not only the likely number of claims that will occur, but also the severity per occurrence and the overall total severity.
Pricing is then established to meet company expenses, distribution costs and funds to pay anticipated losses. The pricing of competitors is also taken into account.
When making decisions on your options, you need the help of someone who understands the Insurance Marketplace and who is trustworthy.
Risk Managers can walk you through the maze of contract legalese so that you can understand your options and pick the most fitting policy.
8) I’ve Been With The Same Insurance Company For Years. I Even Play Golf With My Agent. So, I Am Sure That They Are Getting Me The Best Prices.
Regardless of how dear you feel your friendship is, business is business. Would you expect your friend to lose money by doing business with you?
Plus, no matter how good your friendly agent may be at finding you the lowest cost for insurance from THEIR company, a Risk Manager is going to bid out your account to SEVERAL different insurance agents and brokers.
Your agent can certainly be included in this bid process. Original agents seem to compete well against others. In our experience, they retain the accounts 50% of the time.
These original agents are usually able to obtain some extra savings through their brokers and companies to help them quote lower rates and premiums.
And the other half of the time—lower rates and more savings were found through different companies, brokers and agents.
Either way, you and your company benefit.
Fairytales, Fables and Myths all have their places—just not in your Commercial Insurance program and budget.
More Myth-Busting Advice Is Just A Phone Call Away!
(Photo Credit: Vladislav Reshetnyak/Pexels.)