Insurance costs too much. Brokers and insurance companies often rely on your not knowing the details of the industry or use all sorts of fancy jargon just to get your account on their books. And it can feel like you’re paying for nothing. But you’re paying for security and peace of mind. But just because it can be frustrating and confusing, doesn’t mean it can’t be tackled. Here are 7 tips for playing insurance smart to save.
1. Understand your Premium
Insurance carriers use one of three factors when assessing your premium: gross sales, subcontractor costs or payroll. Be aware which of these your carrier is using, because it can make a big different. The general rule of thumb is: the higher the factor, the higher the premium. Each carrier takes a different approach to calculating your premium, so the price can vary widely between carriers.
Consider: Your gross sales are (hopefully) higher than your payroll. So, if your premium is rated by gross sales but a majority of your business risk comes from subcontractor work, you’re probably overpaying for my policy.
For example, kitchen remodeler has been paying $4,700 for a general liability policy with a premium calculated by gross sales. Turns out that the company subcontracts about 90% of their operations. More often than not, that subcontractor needs his own insurance and won’t be able to file a claim about his work against the remodeler’s insurance. This means that payroll rather than sales is a more accurate (and less expensive!) factor for their insurance policy.
2. Manage your Deductible
A quick way to reduce costs is to increase your deductible. The deductible is the amount you will pay out of pocket before your carrier will pay any expenses for a claim. Typically, the higher the deductible, the lower the premium. If you go this route, be sure to set aside sufficient savings, so that you have the funds to pay down those deductibles, should a claim occur.
A good way to decide on the deductible amount is by taking a look at your cash flow statement or bank account. Consider how much money you could pay for a deductible on a possible insurance claim without putting you into financial strain. You should maintain this amount consistently in your bank account without spending it, so that it’s there if you need it.
3. Consider Pay-As-You-Go to Avoid Overpaying
The vast majority of insurance companies sell annual insurance policies that require payment in advance, which can actually end up costing you more. Some carriers are starting to offer flexible on-demand insurance products. Some major carriers, like The Hartford, CNA and Travelers, now offer pay-as-you-go workers’ compensation.
Premiums are calculated every pay period instead of being estimated at the beginning of the year, so payments are adjusted as employment changes occur, eliminating surprise payments at year-end audits. Accounting software solutions such as Intuit Quickbooks offer direct integration with such programs making the purchase process very easy.
Similarly, general liability insurance is available on-demand too nowadays. For instance, Atlas General Insurance provides subcontractors with insurance project-by-project instead of the more expensive annual premiums. You can buy insurance just for projects and clients that require it and then turn the insurance off when the project ends.
All in all, you could save between 30-60% on your insurance costs. This may be a better alternative if you are not required to have insurance all year round. Check with your broker or carrier if they offer these products. If not, you may want to consider switching.
4. Eliminate Unnecessary Coverage
Your business changes over time. As you add more clients, you also add insurance to fit their requirements. But some policies may overlap or duplicate coverage. For example, you don’t need to insure hired autos and non-owned autos under your general liability policy if those vehicles are covered by your commercial auto policy.
There are a couple quick and simple questions to ask… Do I still own all of the vehicles or equipment listed on the policy? Have I purchased any items that aren’t listed in the policy? Also, are the drivers on my commercial auto policy currently employed by my company?
If you have experienced some employee turnover, your insurer may be charging you unnecessarily for someone you no longer employ. Ask your broker to walk you through your policy(ies) to identify overlapping or duplicate policies.
5. Avoid Unexpected Price Increases
Whether you’re a subcontractor, general contractor or property manager, the simplest way to prevent an unexpected premium increase boils down to three basic actions: maintaining updated certificates of insurance (COIs), estimating job costs and submitting accurate business data.
Maintain updated COIs
The importance of maintaining valid COIs cannot be overstated. Failing to do so can often result in unplanned expenses. If, at the end of your policy period, your contractors insurance company looks at your books and finds subcontracted work without a corresponding COI, they will add the amount of subcontracted work to your payroll or gross sales resulting in an additional premium charge for your general liability policy. One surefire way to maintain updated COIs is to use online certificate management tools that notify you about missing COIs and expiration dates.
Accurately estimate job costs
Successful contractors take the cost of insurance into account when bidding for jobs.
If you’re audited by your insurance company and they increase your premium, your bids don’t include this extra cost. The result is that your profits decrease and you don’t make as much money as you thought you would. Or worse yet, you l may lose money on the project itself.
We recommend taking a methodical approach to estimating job costs and payroll when signing up for your insurance policy. That way, you will be able to offer competitive bids and avoid overpaying for your annual insurance premium. If you’re not comfortable estimating yearly payroll or job costs, consider on-demand insurance that covers short-term and more predictable projects.
Submit good business data
Carriers have the right to audit your books in relation to COIs; they can look at your end of year gross sales or payroll to determine if they were higher than originally reported. Since these are determining factors when it comes to your premium, misreporting them can result in the unfortunate surprise of a premium increase.
One of the easiest ways to assure your business data is accurate is to use a program like Intuit Quickbooks, Freshbooks or Wave that can help to project gross sales and payroll. While the numbers generated may not be 100% exact, they’re based on historical insights, proven algorithms and smart software modeling.
6. Prevent Claims
Claims take place when a potential risk comes to fruition. Therefore, the best way to prevent claims is to follow safe practices that reduce the chance of a bad outcome. Good training programs along with safety plans are reliable ways to achieve this goal. Having a plan and/or program in place eliminates hazards that lead to accidents, injuries and lawsuits, reduces loss and in some cases can lower your workers’ compensation and general liability premiums.
However, a safety plan will be effective only if it is enforced consistently. Consider getting an On-Site Consultation from the Occupational Safety and Health Administration (OSHA). These consultations will help you find out about potential hazards in the workplace, improve programs that are already in place, and even qualify for a one-year exemption from routine OSHA inspections. And best of all, the programs are free!
On top of that, many insurers offer safety programs for subcontractors (often called “loss control” services). These programs are also free of charge. If you take advantage of these programs your insurer may be willing to reduce your rates or even reward you. If you agree to provide employees with a defensive driving program, your carrier may cut you a break on your commercial auto insurance. The end result? Your employees are safer and your premiums are lower. And less risk means fewer claims that your carrier has to pay. It’s a win-win-win.
7. Cater your Policy to the Demands of your Clients
Whether your clients are general contractors, property managers or homeowners, chances are you will run into a situation where your insurance policy doesn’t meet their requirements. This is often a complex issue: you can’t go without insurance, but purchasing higher limits means either reducing your profits or increasing your bid. Plus, insufficient insurance can limit your ability to go after new clients.
So, what do you do? Before you shell out any money, check with your client to see if there’s any flexibility on the limits. Maybe your initial bid was so competitive that your client would rather relax their insurance requirements than pursue a more expensive subcontractor. However, if your client is firm on their insurance requirements, ask your carrier about a project-based policy. Project-based policies allow you to get the required insurance limits for a specific circumstance, and are a much more affordable solution than an overall increase of your annual policy limits.