How to Compare Corporate Insurance Solutions Options
When presented with multipleinsurance solutions, it can be difficult to decide on which on is the best value or fit for you organization. Insurance offerings can be very different as well as very complex. Here are 8 distinct items to help you compare options and determine which one might represent the best value for your commercial insurance program.
1. Insurance Carrier Quality
Every insurance company (or carrier) is unique. Their sizes, product offerings, and brands are completely different. You want to be insured by a financially secure carrier that understands your organization and has the necessary capital and expertise to help protect you. You will want to know what the Financial Strength Rating of the carrier is along with its’ size. Both of these measurements are tracked by several, independent organizations. Our ‘go to’ provider of these ratings is A.M. Best. The company provides guides for understanding their Financial Strength Rating and Financial Size Category. The higher the rating and the larger the company, the less likely it is to have issues making good on the financial protections its’ policies promise. You will also want to do a little research on their brand as well as other organizations like yours that it insures. You definitely don’t want to be an insurer’s guinea pig if they’re looking to branching out into insuring a new industry or type of business.
2. Main Limits of Coverage
The main limits on your policies are typically the largest amounts listed on the declarations pages. These limits typically show the amount of protection you have for each claim you may need to file as well as the total protection for the whole policy (the sum of all claims during the dates the insurance policy is in effect). If you have minimum limits that must be met for contractual obligations or industry-specific regulations, any option that doesn’t meet these requirements is automatically disqualified. If those minimums are met, typically higher limits of coverage are preferable except when those limts would be considered ‘overinsuring’ your risk. Check out our blog on 7 Commonly Overlooked Corporate Insurance Program Mistakes for more information on ‘overinsurance’.
3. Deductibles or Retentions
A deductible or retention is the amount that the insurance buyer must pay out of their own pocket for each claim. Most policies typically have some form of a deductible. There are some exceptions such as ‘first dollar’ policies that carry no deductible. Many Business Liability Insurance policies are like that. If there is a main deductible, obviously the higher the deductible, the more you will have to pay out-of-pocket for each claim. Keep in mind that a higher deductible may be preferable if you are comfortable with your strong risk management services program and the insurer is offering some amount of premium discount for doing so. If the prospect of a higher deductible isn’t something you’re interested in, the superior option will have a lower deductible assuming the premiums being quoted are comparable.
4. Sub-limits & Deductibles
Whether it’s intentional or not, insurers can be very tricky in the way they put together insurance policies. One of the biggest examples of this are sub-limits and special deductibles. The main limits and deductibles in one of the options might be favorable to you but once you drill down into the policy, you may find out that some of the major risks you want to insure are limited to a lower total amount of insurance or carry much higher deductibles. Quite often insurance companies include these reductions in coverage because they have a lower risk tolerance for certain things. For instance, if you own and operate a large portfolio of commercial property that is along a coastline or has some locations near high hazard flood zones, you want to make sure flooding is covered under your policy. However, a property insurer might want to limit its’ exposure to flooding damage so they will offer a reduced amount of coverage, much higher deductibles, or no coverage at all. Sometimes they will increase that amount of coverage for an additional fee. Or you may need to go get an additional policy, such as one through the National Flood Insurance Program, to cover that exposure for an additional cost.
5. Extensions of Coverage
Just like most businesses that sell a product, insurers have bonuses that they can add on or throw in to increase the overall attractiveness of a policy. Many times these come in the form of packages of additional coverage. Many, some, or none of which might benefit your organization. One of the examples of this happens when purchasing builder’s risk coverage for a building under construction or being renovated. Many property owners underestimate the cost to repair or replace damaged buildings because a lot more goes into recovering from a large amount of property damage than just the reconstruction. Debris removal, cleanup, and updating damaged parts of the building to be in compliance with current building codes can all drive up the cost of recovery. As such, many builder’s risk policies may automatically include a package of coverage extensions that provide some additional amount of money for these types of expenses.
As if insurance wasn’t already complex enough, insurers include exclusions of coverage after they tell you what they are willing to cover. Why? Well many times they use very broad language to tell you what they will insure at the beginning of the policy and then use the exclusions to remove those risks they don’t intend on covering. The exclusions arise for many reasons, but the most important thing for you to focus on is whether those exclusions are removing coverage you really need. Many exclusions can be removed just by asking the insurer to remove them or for an additional cost. The key takeaway is that you don’t want to purchase a policy that you eventually find out doesn’t cover what you thought it would cover because of an exclusion that was lurking in the back of the contract.
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7. Added Services
Specialized claims handling, property inspection, forensic IT audits, and many other services can be provided as an added value by an insurer. Those services may be thrown in for free or at a dramatically reduced cost if you eventually need them. Take into account these offerings when evaluating the whole package. They may tip the scales if two options are essentially equal otherwise.
It’s typically the first thing you want to know. How much does it cost? But we mention price last for a reason. What you pay and the value you get are two completely different concepts. The easiest way to explain this is with an analogy. You’re buying a pickup truck for your organization. Its’ intended use is to haul heavy material, tools, equipment, and several workers on your team from job site to job site. A pickup dealer presents you with 3 options. The highest-priced option has a dual rear axle, 4-wheel drive, towing capacity of 2.5 tons, and seating for 6. The middle option has a single rear axle, 4-wheel drive, towing capacity of 2.5 tons, an extended bed, and seating for 5. The lowest priced option has a single rear axle, front wheel drive, towing capacity of 1.0 ton, a short bed, and seating for 3. If you just looked at the price, you’d have a small pickup that wouldn’t get the job done. The same is true of insurance. Price isn’t the only indicator of what you’re getting. Now that being said, if two options are comparable on every other level and one is lower priced, you’d be a fool to pay a higher amount. Just make sure you’re not assuming the options are comparable when they aren’t.
Whether you need someone to help kick the tires on potential insurance solutions, build and implement a program, or help improve a program that you already have in place…Treadstone is able and available. Schedule a Consultation Today!