RISK ROUNDUP—Commercial insurance renewals come around once every year just like Christmas. Of course, renewals aren’t as much fun as a major holiday, but they can be similar in one way—sometimes they can be stressful.
So, we’ve gathered some information to help you get started (and motivated) for your next renewal.
This three-part posting includes:
- A quick Renewal Overview for small businesses;
- A Risk Management Breakdown of the renewal process for mid- to large-sized businesses; and
- Examples of renewal information (lists and schedules).
Contributors for this special Risk Roundup include American Risk Managers Vice-President Jessica Spears, who wrote the Renewal Overview, and American Risk Managers Company Founder, Owner and Chairman Walter Haney, Sr., who penned the Risk Management Breakdown.
When getting ready for an insurance renewal, one of the first things to do is to start gathering the information you will need to provide to the insurance company.
This information consists of the following: locations with values; schedules of your electronic data equipment and inland marine equipment; lists of vehicles; lists of drivers with license numbers and dates of birth; payroll; sales; and loss runs.
Once you have all of this information gathered, it is best to sit down with your current agent and discuss expectations and the market place.
After this conversation, you will be able to determine if you should have a negotiated renewal or go out to market.
It is not recommended to take your account to market every year. It devalues your account. We suggest looking at it every three to four years, unless there is an issue which leads you into the market sooner.
After this meeting, if you decide to work with your current agent on a negotiated renewal, you will need to give them all of your updates and fill out any applications, etc., needed for the renewal.
If you decide to go to market, you will need to determine which agents you would like to include.
Once that decision has been made, you will need to request a list of markets from each agent in order to assign markets. This keeps multiple agents from going to the same market and shutting it down.
After you have assigned markets, you will be ready to send out the bid specifications to all the agents bidding. They will come back to you throughout the process with various questions, applications, and additional information that they may need.
At the end of the bidding process, you will need to review all submissions and compare them apples-to-apples before making a decision.
This will consist of going back to them with questions on things that one agent might have included in their presentation and one did not.
Once you have made your decision and awarded your business to the agent of your choosing, make sure to review the binders for accuracy. You will also need to do the same with the policies once you have received those.
Renewals: The Risk Management Way
The single most important project that American Risk Managers performs for its clients is the creation of “Bid Specifications.”
This document forms the basis for the insurance to be purchased for the following year.
Bid Specifications are a compilation of all the information gathered for the individual company—to include descriptions of all properties, vehicles, sales, payrolls, losses, and any other pertinent data—as related to the individual client.
If this renewal is to be a competitively-bid placement, American Risk Managers (ARM) will request a list of preferred markets from each of the bidding agents. When these forms are received, markets will be assigned on the basis of the agents’ preference rating.
Agents of Record Letters will then be prepared to assign each insurance company to a specific agent.
All underwriting information will be provided as a portion of these Bid Specifications and ARM will continue to provide updated information for the client to each of the bidders.
All appointments, surveys or other information will be provided by the bidder, coordinating his needs through ARM.
ARM will also arrange the timing and presentation from each bidder.
Upon the completion of all presentations, ARM will provide a spreadsheet detailing all the proposals, so that management is provided with a basis for making a sound business selection.
ARM will assist clients in the placement of the insurance and will review all insurance binders and insurance policies to ensure that the coverage complies with the Bid Specifications.
No Bid Basis
If the coverage is being renewed on a “No Bid Basis,” the procedure is the same, with the exception of selecting agents, their markets, Agent of Record Letters and other attendant duties enabling multiple agents to furnish quotations.
All other preparatory measures are taken to ensure that all exposures are covered or are self-insured in the full knowledge of the insured.
Schedule & List Examples
Property Schedules can include a vast amount of information. Four basic types of information include Location Address, Year Built, Type of Construction and Square Footage.
Electronic Data Equipment Schedule
For Electronic Data Equipment, information should include Equipment Name and Number, Serial Number, and Equipment Location—such as your main office, branch name or other facility.
Inland Marine Schedule
For Inland Marine (Contractors Equipment that moves from place to place), information should include Equipment Name, Location, Date of Purchase and Value.
Vehicle Lists can also include a lot of information, including a designated Vehicle Number assigned by your company. Three other basics are Year/Vehicle Type, Cost, and Serial Number.
Drivers Lists usually include a designated Driver Number, Full Names, Dates of Birth and Driver’s License Numbers.
Regarding the other information needed for your renewal:
- You will provide an amount for “expected payroll;”
- You will provide an amount for “expected sales;” and
- You will obtain loss runs from your insurance company.
Good luck with your next commercial insurance renewal.
Hopefully, the advice shared by our Risk Managers will help save you some time and worry.
AND if you’re interested in saving money—most Independent Risk Managers can find enough savings for you to more than cover their fees.
RISK ROUNDUP – You’ve heard many times that “Knowledge is Power.” We’re here to tell you that there is A LOT of power in having the knowledge of HOW TO check your Experience Modification Factor, also known as your Experience Modification Modifier.
Many businesses are not aware that this type of formula—when calculated incorrectly—can add unfounded overcharges to their Workers’ Compensation premiums.
For that matter, many businesses have no idea there is anything they can do about saving money on Workers’ Compensation costs.
Adding more confusion to the equation is the fact that your Experience Modification Factor and your Workers’ Compensation Codes actually AFFECT each other.
So… if either of these is wrong, you’re going to be paying WAY more than you should have to.
But, for right now, let’s try to begin at the beginning…
How to Check Your Experience Modification Factor: Lesson 101
The National Council on Compensation Insurance (NCCI) is the organization responsible for calculating your Experience Modification Factor.
(You could say the NCCI is like the Wizard of Oz of Workers’ Compensation… Or maybe not. But we have to have a little fun in this dry-as-dirt, nearly-impossible-to-explain post.)
OK, so, the NCCI takes your payroll amount versus your losses amount and THEN they compare it to other businesses in the same industry.
They are comparing it to YOUR industry as a whole.
This is your total payroll for your entire business versus the amount of losses or Workers’ Compensation claims that you have.
Again, they take this information and they compare it to other people in YOUR exact field.
If you’re a lumber company, they compare your figures to other lumber company’s figures.
If you’re a trucking company—etc. If you’re a telecommunications provider—etc.
I can tell you’re with me so far—and you’re saying to yourself, “This is not hard to understand at all.” But that’s because you are really smart. (I had to have someone explain this to me 20 times.)
Your Unique Experience Modification Factor
YOUR Unique Experience Modification Factor is then put on your Workers’ Compensation Insurance policy.
If you have a really good loss record—meaning hardly any claims—then you’ll have a good “modifier” number.
If you have a bad loss record—with a lot of claims—then you’re going to have a number that you don’t like so much.
And you’re going to have to PAY more for your Workers’ Compensation policy.
The NCCI also has a system of “credits” and “debits” based on your formula.
If you have a high payroll and low losses and your Experience Modification Factor (or modifier) is less than 1, then you get something called a “debit” on your Workers’ Compensation.
For example, if your modifier is .85, then you’re actually getting 15% back because the Wizard of Oz can see that you’re doing good with your losses.
BUT… if your payroll remains the same and then your losses go up really high, and that modifier goes above 1—then you’re gonna get what’s called “credited.”
BUT… BUT… you’re not really getting a credit—you’re gonna get charged for that.
(Is it just me or do these not sound like they are the opposite of what-was-previously-known-as-credits-and-debits?)
Okay. You’re now at 1.15. You had .85 and then you went to 1.15. This is horrifying! This means that not only are you going to pay your basic premium—you are going to have to pay that amount PLUS 15% more.
For those who are math challenged (like me), that was the 1—and then .15 over the 1—that got you the bonus charge of PLUS 15%.
The Wizard is punishing you because your losses are not performing like they should be based on your payroll.
You are having a lot of losses compared to most people in your industry with similar payrolls.
Is there anything you can do?
Yes, you cut your losses!
We don’t mean quit—we mean get on the Safety Train and get some classes and videos in there. And perhaps check out buying some new equipment if everyone is getting hurt on the same piece of machinery.
Is there anything else you can do?
How to Check for Common Errors in Experience Modification Factors
You should go through your NCCI Worksheet with a fine-toothed comb. (Translate: You need to actually “do” what that cliché “means.”)
Make sure that they’ve (NCCI aka Wizard) put in all the correct Workers’ Compensation Class Codes for your employees.
This is known as “Cracking the Code.” (Not really. I just made that up.)
And most of all, you want to make sure your payroll has been entered correctly.
I’ve been told that’s where many of the unfounded issues are found. (Actually, I was told that’s where the issues were found, but saying unfounded issues and then found was too much fun to pass up. But this is NOT about me… Sorry)
IF your payroll was put on the worksheet incorrectly, it’s going to have a very big positive or negative effect on your premiums.
And your payroll is just one of a (too-complicated-for-me-to-understand) series of “little factors” that go on the worksheet and then “get multiplied out” to create Your Unique Experience Modification Factor.
(At this point, you’re realizing you probably need professional help—and you may think I do, too. Just bear with me a few more sentences.)
IF your company is REALLY a Number 1, but it’s classified as 1.5, then you’re actually paying another 50% of premiums! HELLO!
BUT, if you have a .5, that means you’re getting 50% BACK. And that’s REALLY good news!
ALWAYS double-check all the information related to your Experience Modification Factor.
That just makes good (dollars and) sense!
Get In Contact For More Glimpses Behind The Wizard’s Curtain!
RISK ROUNDUP – Our new website is finally up!
We’ve worked really hard to get this new site ready and we hope you find it helpful in your search for Risk Management information.
We are so proud to have you visit!
Thanks for taking the time to read our “Risk Resources” blog.
We have lots of great posts in the works and are excited about sharing our knowledge and experience with our readers.
One thing you may notice about our website is that it’s different from many others. This website was completely designed with YOU in mind. YOUR needs. YOUR questions. YOUR problems. And how we can help YOU!
American Risk Managers originated as a service-based business and continues its mission to this day.
With 40 years of experience helping companies deal with risks (and finding savings along the way), Mr. Walter Haney, Sr., was vital in leading the drive to create a unique website where prospective clients could find as much information as possible.
If you’d like to learn more about our goals and our founder, one of the first Risk Managers in the Southeastern U.S., more information can be found on our ABOUT page and by visiting RISK: That’s What We Do.
Please check back often. Or feel free to contact us now to find out how we can help you with your company’s Risk Management needs.