Insurance Assurance Newsletter

October 2010

The Simmonds' Business Insurance Index™ For October, 2010

Here's my read of the current marketplace for upcoming business insurance renewals:

--Renewal Premiums: -5%

--Renewal Coverages: Liberal Terms

--Buyer's Outlook: Long-Term: Prices Flat

I have seen no real change in the insurance marketplace this month. I am, however, changing the premium part of the index to -5%. Since July I have shown "-5% to flat." I'm not convinced, in hindsight, that flat is really where the market has been / is. Competition still will push your premium down.

I was interviewed a few days ago for a business website. I said, "If an entrepreneur renews his insurance with the same agent and the same insurer with no "push-back," his renewal premiums will increase @5%. Renewing with the same agent/insurer with push-back will result in a slight reduction or a flat renewal. Competitive bidding will result in a 10 to 20% reduction in premium. The trick is how you manage the bid process."

I also talked about the magic of six words, "Is that really your best price?"

The writer expressed surprise that business insurance premiums are negotiable. They sure are. Most underwriters can increase or decrease base rates by 25%. That's a 50 point swing!

I have long said that a great deal of the discretionary part of premiums is dependent on how the insured appears to the underwriter. Is the insured an attractive risk? Does the agent present the account in a favorable way?

The insurance press continues to predict a soft market for the rest of this year. I agree. I am urging my bank clients to lock in the bond and directors' and officers' premiums for 3 years.

Prices will go up. The problem is predicting when. I do know that bringing competition into your renewal will improve your coverage and premium.

Go HERE for my comments from past months.

Financial Wealth Benchmark

I recently reread parts of the book "The Millionaire Next Door," by Stanley and Danko (1996).

The book puts out a benchmark for financial wealth: Your net-worth should be greater than your age, multiplied by 10% of your income.

I know there is an arbitrary component to this. However, I like benchmarks.

How About A Way to Figure Adequate Liability Insurance Limits?

Speaking of benchmarks... How about a way to figure out how much liability insurance a business should have?

I have seen many such formulas. I have never bought into any of them.

Here are the "normal" liability insurance policies for most businesses:

Auto Liability - Pays for bodily injury and property damage caused by a motor vehicle accident. Should include coverage for accidents caused by the operation of owned vehicles and non-owned vehicles (by an employee, for example). My Minimum Recommendation: $1,000,000.

General Liability - Pays for bodily injury and property damage liability. Most policies also include coverage for libel, slander, wrongful eviction, false arrest, and publication that violates privacy. Coverage applies at your locations, at other locations in the course of your business, for products liability, and for completed operations. My Minimum Recommendation: $1,000,000 each occurrence / $2,000,000 in the aggregate.

Employers' Liability - Part of workers' compensation insurance. Pays for bodily injury that comes from the employment relationship but excludes injuries covered under workers' compensation. The best way to describe this coverage is with an example. A boatbuilder comes home every day with fiberglass dust in his clothes. The dust gets into the air at home and in the clothes of the family in the laundry. A child in the home gets sick from the dust. That would be covered by employers' liability. My Minimum Recommendation: $100,000 (most umbrella insurers will require $500,000).

Employment Practices Liability - Liability insurance for acts of employment harassment, wrongful termination, failure to hire, discrimination, and other similar allegations. EPL policies almost always provide for defense cost coverage within the limit of coverage - increasing the amount of insurance you need. My Minimum Recommendation: $1,000,000.

Fiduciary Liability - Protects the fiduciaries, directors, and officers of employee welfare plans (group insurance, pension plans, 401k plans) against actual or alleged wrongful acts. Covers liabilities imposed by the federal law ERISA. My Minimum Recommendation: $1,000,000.

Directors' and Officers' Liability - Provides coverage for allegations of third parties for mismanagement, failure to act properly, and other "wrongful acts" against directors and officers. Coverage also can be included for the organization, known as entity coverage. Not all companies need D&O insurance. The coverage is necessary for non-profits and companies with diverse ownership interests. If you have a small company with 3 owners all active in the business, you can probably do without D&O. These policies almost always provide for defense cost coverage within the limit of coverage - increasing the amount of insurance you need. My Minimum Recommendation: $1,000,000. More coverage may be advisable depending on exposure to loss and the assets of the organization. It is also a value decision. Get quotes at a variety of limits and judge the value of the protection compared to the cost.

Umbrella Liability - Provides extra liability coverage above the general liability, auto liability, and employers' liability coverage. Also known as excess liability. Every business should have at least a $1,000,000 umbrella. There is no magic to this number. $5,000,000 is a more realistic minimum.

I know of a four employee, $200,000 sales contracting firm that accidentally burned down a $7,000,000 church. Not many insurance agents would have suggested beforehand that the contractors buy a $10,000,000 umbrella. Obviously, hindsight is 20/20.

You have to decide how high is up. Again, get quotes at a variety of limits and judge the value of the protection compared to the cost.

How I Help My Clients

I fix broken insurance.  Uncertain coverage and painful premiums.  Consulting on, but never selling, insurance.

How can I help you?

--Are you unsure of the coverage you have?

--Are you unsure about your premiums?

--Are your policies coming up for renewal and you want to investigate the marketplace?

--Are you unsure of the abilities and work of your insurance agent?

I can help.  Call or email me now.

Insurance Agents

I occasionally work with insurance agents in the review of commercial accounts.  You provide me with a copy of the current policies.  We talk on the phone about the exposures and issues presented by the insured.  I then compile a list of coverage and risk management considerations.  We discuss that list in a phone conversation.  You then have 3 weeks of unlimited email followup with me on the issues raised to further the value you receive from our work together.

You get:

-A second opinion of the work you have done.

-An unbiased extra set of eyes making coverage suggestions.

-The opinion of a long-time insurance expert with a broad range of experience.

Call or email me to discuss what you need and what you want.

Your comments and suggestions are always welcome.

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