As we come to close out 2013 and start a new year, traditionally a time that business owners, leaders and decision makers take time to plan and build their thoughts around improving their business for the new year, we thought this list of strategies to help improve business protection would be helpful.
1. Perform a review of your existing policies
Your current coverage program is the best place to start potential improvements. If you haven’t sat down with your insurance broker in a while to conduct a thorough review of your policies, take the time to do so, as this may open dialogue to areas that need improvement or adjustment. If you don’t have a great relationship with your broker or feel like you may have outgrown your brokerage relationship, than the first step may actually be to find a qualified professional to work with and conduct a policy review with them.
How do you find a qualified professional? Ask around – ask decision makers at companies in your industry or similar industries and of similar size for recommendations. Ask you accountant, banker, or other trusted advisor. Or, if you belong to a local trade organization, ask them for a reference. You may hear the same names “pop up” more than once and this could be an indication of a good person to speak with. We recommend contacting two or three of the referrals you receive and conducting a phone interview to see which one (s) may have the most experience and practical knowledge to help you. Then meet in person the top one or two brokers before making a final decision. Conducting a qualification process based on knowledge, professional expertise, personality, availability to the insurance marketplace and available risk management resources is a more thoughtful approach, rather than choosing a broker based on who has the lowest price. That advisor will then be able to help you conduct a thorough examination of your policies and exposures to loss to make sure you have the right coverages you need.
A formal checklist or audit form should be used to evaluate all your exposures to loss and then match up your policies to determine if your bases are covered. Special attention should be paid to property limits, unique coverage forms, management liability exposures, and umbrella limits. While 2013 saw commercial insurance rates slightly over the prior year, it’s expected that 2014 will see a moderate evening out trend in rates, so if additional coverage is needed, now is the time to negotiate the coverage.
2. Perform a Claims Review
Similar to a coverage review, a claims review will help you and your company better understand where the problem areas are in your risk control program. If for example you have a fleet of trucks on the road and there are several “fender benders” in your claim history over the past few years that may mean that the driver selection process or driver training process may need to be improved at your company. If your loss history shows an above average number of worker injury claims that too may mean the need for additional risk control or safety training with employees. (We’ll discuss risk control in a moment)
The other thing that a claims review will do is find whether there are open claims that need further analysis. Claims which remain open for a longer than normal period of time may be negatively impacting the pricing of your insurance through experience rating modifiers in the workers comp policy, and experience rating factors in other policies. It not entirely uncommon to have claims linger for years with high dollar figure reserves and no actual claim payments made. Those reserves negatively impact your experience and those claims may be eligible to be closed out. This will reduce the impact on your experience rating formulas.
You’ll only find these types of claim problems if you conduct a claims review, so it’s worth the effort to conduct one. Again, a qualified insurance professional should be able to do this with you.
3. Audit your Workers Comp Experience Modifier
Your workers comp policy has an experience modifier, sometimes called the mod, rating factor or e-mod. Its purpose is to give the workers comp system some credibility with regard to weighting rates based on loss experience. Each employer’s modifier is different, based on their actual payroll and losses for three of the past four years. Some experts believe that 60 percent or more of the published modifiers are incorrect, so chances are pretty good that yours may be one that needs correction. The errors that occur can originate from incorrect input of the payrolls and loss amounts, or from the actual math that is done in computing the modifier. You can hire a consultant to perform this audit who may work on a flat fee or on a contingency basis. Those that work on contingency typically will “take” 50 percent of the savings they find you as a fee. Your broker may be able to conduct this audit as well, and should be able to do it at no additional charge, or at a nominal fee. In any case, correcting a mod that is incorrect not only gains you potential refunds, it also sets your policy straight for the future saving you premium dollars.
Another by-product of the audit should be a view into what each worker injury claim is costing your company in the form of additional premium through the increasing experience modifier. Many worker comp claims which are under $10,000 end up costing you additional premium that may equal one to two times the actual amount of that claim! This analysis will help identify those costs and then help influence decisions and investments on loss control and safety initiatives in your company.
4. Evaluate your Corporate Safety Program for Effectiveness
Does your company have a safety manual? Does it sit on the shelf collecting dust? You’re not alone.
Too many mid-market firms have safety manuals that are outdated and ineffective, or not in use at all, and that’s a terrible waste of an opportunity for improvement. We have found that clients which are proactively engaged in safety and risk control outperform companies which do not have a program in several areas; including: quality control, production quality, improved worker productivity, lower insurance costs and more. If you’re looking to improve the fundamentals of your business in 2014 than safety and risk control may be a good place to start as it impacts most areas of your corporate structure.
How do improve or evaluate corporate safety programs?
There are a variety of places to start depending on your needs and the size of your company. Larger firms typically will have a safety coordinator or safety officer on staff whose job is to make sure the company is operating safely and efficiently but mid-sized and smaller firms don’t have the resources for a full time safety or risk manager. That’s where outsourcing comes in, and safety consultants can be found online to perform training, perform initial needs analysis, and review current safety manuals and materials. Look for consultants that specialize in your particular industry or sized company. Your insurance broker or insurance company may also have the resources available to bring together a safety program to fit your needs – but often these services are fragmented and limited. Our firm incorporates corporate safety and risk management services into many client engagements where the need or employee size is present to warrant such services. Our online risk management platform has thousands of documents available to our clients for download, and our knowledgeable experts in the area of safety and risk management can make us your outsourced safety professional at no additional costs. Check to see if your broker can do the same for you to maximize the positive impact safety can have on your organization.
5. Consider a Captive
Captive insurers were once considered the domain of very large public companies, but changes to the tax code and captive structures have made them good tools for mid-sized and even some smaller to medium sized firms. Micro-Captives also known as 831 (b) captives permit companies to invest up to $1.2 million of premiums into a captive per year. Ideal candidates for this sort of plan are companies with stable cash flow, good profitability, and revenues over $10 million. Micro captives can help firms improve their risk management capabilities and gain greater control over insurance coverages by retaining more risk in the form of higher deductibles or retentions. The captive can be used to cover a variety of exposures to loss that are either difficult to obtain commercially or costly. One of the greatest benefits of a captive in this format is the potential for long term wealth creation in a tax advantaged method.
Several captive brokers and firms specialize in micro captive structure and bundle the necessary services into one streamlined approach to self-insurance. For more information on what a captive can do for you, consult your broker for further details. Or, contact us for a consultation.
Understanding what you have and what you need when it comes to insurance is key to avoiding un-insured or under-insured losses down the road. We often meet prospective customers shortly after having an uncovered loss – they’re mad and aggravated, and while we’re more than happy to help them out and start a new business relationship, it’s easily avoidable. As 2014 begins take that step to call your broker (if your confident in their ability) and tell them that you’d like to schedule a face to face meeting to review your coverage, your claim history and ask what can be done to improve safety and risk control during the coming year. You don’t need to wait for your renewal to occur to do this, or to have your workers comp experience mod audited either! Lastly, think about whether a captive insurer is right for you and your business. Revenue size is the first step to determine that, as well as your appetite for self-retaining risk. If your broker isn’t up to the task on helping you with these sorts of issues then give us a call for a consultation. Our broad base of resources, tools, and expertise are at your disposal to help improve your company’s protection and risk control plan which can lead to cost reductions, improved productivity and profitability into the New Year!