Insurance – 20 Questions and Answers for Your Business
Businesses have risk. As a consequence of risk, they have a need to protect against loss from risk. There are two primary means to address business risk – designing a robust business structure and systems that enable compliance
– insuring against risks that cannot be mitigated through sound operations.
First recognizing that a business is comprised of its people, the business that can recruit and retain top performers that are expert and experienced is ahead of the game. In order to have access to the top performers, businesses need strong, competitive compensation packages that include group health benefits.
Understanding the nature of insurance – types, restrictions, limitations, and costs – is the foundation for assessing your needs. For answers to both group benefits and commercial insurance, we turn to two experienced insurance industry business leaders: Judy Fourie of J. Fourie & Company – an insurance broker who specializes in group benefit plans (as well as individual health and life) and Lori Wright of H & M Insurance and Financial Services, Inc. a Nationwide insurance agent who works with businesses to identify just the insurance coverage needed.
1. How do brokers and agents differ?
LW: A broker represents the insured. An agent acts of behalf of another party (the insurance company). Where an agent general places the majority of their business with one large carrier, a broker places business with multiple carriers.
JF: Broker generally refers to an agent who represents the client. An agent is technically thought to represent an insurance company.
2. What are the benefits and drawbacks of each?
LW: I actually have experience in both the broker and agent fields. I think is “six of one, half dozen of the other”. Brokers generally have access to more insurance companies allowing them to shop several different markets and comparison shop. Agents have one primary carrier they work with. When you are placing the majority of your business with one carrier, this, at times, can afford you more competitive pricing and underwriting flexibility.
JF: I don’t think most people are aware of the difference unless you are in the real estate business. I have heard the terms used to mean the same thing, a seller of products.
3. What is a broker or agents role in assisting clients with claims?
LW: Many brokers or agents will direct their clients to an 800 number and remove themselves from a claim situation. I believe it is fine to refer the client to an 800 number as long as you make the client aware that if they should have questions or concerns regarding their claim, you are there to assist.
JF: There was a time when an agent took a significant role in assisting clients with claims. Because of the privacy issues today, it has become more difficult to be helpful.
4. What are the insurance products that we should understand and consider?
LW: Individuals should begin with developing an understanding of their personal insurance needs such as auto, homeowners or renters, life and health. Business insurance is much more complex and definitely should be analyzed by a professional with commercial insurance education, experience and knowledge.
JF: Most people start with whatever is required such as auto and homeowners insurance. In the order of importance, each purchaser has to buy according to what they perceive to be the greatest exposure. In other words, what loss would create the most financial hardship for the business or the family? Most people think of health insurance because an uninsured loss could wipe out future earnings. Others may think of life insurance to protect their families. The most neglected product that protects all of the above is Disability insurance. If you are sick or hurt and cannot work you will not be able to pay the premiums on the other insurance you have and potentially lose everything. Early in my career, I heard the remark that whatever risks you do not transfer to an insurance company are being self insured. It turns out to be pretty simple math.
5. How do we compare products and services?
LW: An “apples to apples” approach is best in comparing products. ABC Company may be cheaper than XYZ Corporation, but are you getting exactly the same product and coverages? I do not believe this business is all about coverage and pricing though. I feel a client needs to trust their representative and feel comfortable with the product and service provided. It is up to the representative to educate the client on their particular policy coverages and what they are paying for.
JF: Transferring risks to stable, financially sound insurance carriers helps reduce the possibility that the product is inferior with hidden limitations. Having a knowledgeable, experienced agent to explain the provisions and make recommendations that are appropriate and cost effective is also a plus. Friends and business associates are great sources of referrals to find the right fit for your industry and needs.
6. What are deductibles? How do deductibles impact pricing/premiums?
LW: A deductible is an out of pocket expense the insured pays prior to the insurance company paying. The credits applied for deductibles vary by company and product line. An individual may not save that much by switching the collision deductible on their car insurance from $250 to $500, but a business may save a substantial amount by switching their deductible from $250 to $500.
JF: Deductibles for health insurance start at $250 and go to as high as $10,000 plus. Higher deductibles can have a significant influence on price. Many companies today are considering higher deductibles to save money and implementing Health Savings accounts or Health Reimbursement accounts to cover the first dollar expenses.
7. What are waiting periods, excluded items, and the like?
JF: Waiting Periods generally refer to when a benefit begins, for instance a long term disability policy will not begin payments until a policyholder has been disabled for a specified period of time such as 30 days, 60 days, etc. Most all contracts will have excluded items “the big print giveth and the small print taketh away”. I encourage my clients to look at exclusions first. Even though exclusions are fairly standardized it eliminates misunderstandings about what they can expect from their policies.
8. Business interruption, business revenue replacement, key person insurance, and long term disability – what are they and how do business owners use each type to protect his/her business?
LW: Business interruption, loss of business income, loss of rents, etc. all indemnify an insured for an actual loss of income during a restoration period. If an insured should suffer a fire loss, it could be months before they are back in business. These types of coverage help the insured maintain their business until they are again operational.
JF: Key Person insurance is a life insurance policy on a key employee that has the employer named as the beneficiary. The proceeds are used to help the company find a train a replacement. Long Term Disability replaces lost income on an individual who cannot work due to an injury or sickness. Both of these products are valuable to an employer because a business can recover quicker from the loss of a valued employee and the long term disability protects an employer from being in the position of having to decide how long they can pay a top level executive who is disabled. Transferring the risk after a 30 to 160 day wait solves the problem for them.
9. How do general liability, umbrella policies, and errors and omission insurance work – when is each needed or are they all needed?
LW: General liability coverage is designed to protect your property or assets if you are deemed liable for an incident that resulted in bodily injury or property damage to another party or parties. Umbrella coverage extends your general liability coverage beyond the limits of your basic policy at a set amount of coverage. Errors and omissions (insurance) is generally applicable to anyone that gives advice, makes recommendations, designs programs, etc. All businesses are unique and each should be analyzed by an insurance professional to determine which coverages are required to best protect a business or individual. At times, all of the above are recommended, other times, only one type of coverage is necessary.
10. Do businesses need 10 or more employees before they can get group health insurance or can they get plans before they reach 10 people?
JF: In North Carolina, a business with one employee is entitled to group health insurance as long as they can provide proof that they have a viable business.
11. When do companies need to get workers compensation insurance?
LW: Businesses need workers compensation coverage if they have employees or, at times, if they are working as a subcontractor. Generally, in the case of subcontractors, the primary contractor or vendor will require the subcontractor to obtain workers compensation coverage even if the business is a one person operation.
12. How can companies be strategic about implementing an insurance program?
LW: Businesses should consult with an insurance professional that specializes in the particular type of insurance they require. If you need business insurance, consult with an agent or broker that specializes in commercial insurance. If you require health, life or group coverage, seek out a life and health insurance specialists. These professionals should analyze the risk and prepare a program tailored to the particular type of business or risk.
JF: They need a trusted advisor, a professional such as a financial consultant or insurance agent. A team of advisors can greatly help a company because of the collaborative effort involved in directing the company in what to implement and when.
13. If someone is a sole proprietor, do they need different/more insurance than other legal business types? What about insurance needs for home based businesses?
LW: The type of entity a business is, whether is be a sole proprietor, corporation, etc., really does not determine the amount of or type of coverage. Once again, all risks are unique. A home based beauty salon would require a different type of coverage than a home based web designer. A salon would have a steady flow of clients on their property; a web designer generally would not. Different risk, different exposures, different types of coverage.
14. As a business grows, do their insurance needs change and if so how?
LW: As a business grows, the insurance needs generally change. There could be an impact on the amount of property owned, which would increase the property coverage or the liability exposure may increase.
JF: It has been my experience that insurance needs change as a business grows. Health insurance is one of the first things a business gets because it helps them attract employees. As the business grows, they may want to add benefits and a retirement plan.
15. What is self-insurance?
LW: A self-insurer does not transfer the risk to an outside company or carrier, but sets up its own reserves to provide for losses.
JF: Self insurance is anything you pay out of your own pocket where the risk could have been transferred to an insurance company.
16. What are FSA and HSA accounts and how can businesses use these to manage the costs of health insurance?
JF: Flexible Spending accounts allow employees to reserve a specified amount of untaxed wages that can be used to pay for deductibles, insurance premiums, child care, etc. A Health Savings Account allows an employee to contribute untaxed money to an account that can be used to pay first dollar health insurance expenses. A Health Savings account has to be paired with a high deductible health insurance plan with no co-pays or drug card. The money in FSA’s have to be spent by the end of the plan year and just announced this week can be carried over 2 ½ months after the end of the plan year. Unused funds in a Health Savings account can be carried over from year to year and ultimately used to supplement retirement.
17. Are there differences in insurance for renting commercial space as a standalone office versus locating in office suites where there are shared common areas?
LW: Regardless of whether a business rends a commercial space as a standalone or a common area does not impact the premium or coverage.
18. What are the different types of life insurance and how does someone decide whether to take the “company” offered life insurance versus having a private policy?
JF: The two basic types of life insurance are term and permanent. Term has no cash buildup and can have a rate that is guaranteed for a specified number of years up to 30. Permanent has a cash value buildup feature and the premiums usually stay stable for the life of the contract. I do not recommend using company sponsored term life insurance as the primary source of protection. Most people change jobs many times during a career and the term life from an employer does not extend into retirement and unless an individual saves adequately they can come up short at retirement at a time when getting affordable life insurance can be a challenging.
19. If a business has company vehicles, what type of insurance do you recommend? Does it reduce the premium costs if the company has specific practices and policies on who is allowed to drive the vehicles?
LW: Business automobile coverages also vary by risk. I certainly would not recommend that a business with a fleet of vehicles carry a $300,000 liability limit, where $300,000 liability may be perfectly acceptable for an individual contractor with no employees. It is always recommended that a business have specific practices and guidelines for drivers. Motor vehicle records should be obtained on all new drivers before hire. If there is a system of control regarding the drivers, there is less likelihood of claims. This will also help maintain the coverage with a preferred carrier and better rates as opposed to a non-standard carrier with much higher rates.
20. If a business is currently uninsured, what the first thing you recommend they do to identify areas of potential risk?
LW: I like to meet with business owners and discuss thoroughly any possible type of exposure or risk that could impact their business. I work with them to develop an insurance package or program with the best coverage available at the most competitive rates.
Lori and Judy, one final question. You both are successful business women in an industry that is often viewed as a “commodity” that competes on price. What advice do you have for new and existing business owners concerning growing your client base?
LW: I firmly believe enthusiasm and attitude are a huge factor. Also, networking can be extremely useful is getting your name and reputation recognition. In some cases, it’s who you know.
JF: Stay as up to date as you can and don’t spend so much time working in your business that you miss new trends and opportunities to connect with other business owners where many of these types of things are discussed. Be positive and cheerful and have a good sense of humor. People like to do business with people who are happy and enthusiastic.
If you have more questions about your personal or business insurance needs, you can contact our insurance experts directly.
Lori A. Wright is a commercial insurance specialist and associate agent with H & M Insurance and Financial Services located in Durham, North Carolina. She can be reached via telephone: main office (919)544-0346 x 307 or her mobile (919) 672-9860.
Contact Judy Fourie, President, J. Fourie and Company, Inc. (insurance broker) located in Cary, North Carolina. Judy can be reached via telephone: (919) 481-1815 or by e-mail: [email protected].
Copyright ©2005 F.O.C.U.S. Resource, Inc.