The way you select insurance can have a big impact on the security that you will gain from your coverage. Find out how to use a competitive bidding process to drive down your insurance premiums.
By Tara Remiasz
Insurance coverage is as integral to protecting your company’s net worth as locking your company’s doors at night or employing trustworthy individuals. But paying higher premiums doesn’t necessarily mean that you will get better coverage. Learn how to find the best property and casualty insurance rates possible without compromising the benefits of having a good insurance plan.
Go Out to Bid
Your business should enter into an insurance-bid process at least every three years, says Scott Simmonds, president of Insurance Consultants of Maine Inc. in Saco. Simmonds, a long-time insurance agent, now consults businesses on their insurance plans and only makes his income from the insurance purchaser.
When companies compete for your business, they will be more inclined to offer you competitive pricing. “When it comes down to it [insurance agents] make more money when your premiums [are] higher,” Simmonds says. “The bid process, it drives premiums down.” The entire process might take between 10 to 15 hours of the business owner’s time, depending on the complexity of your business, he says. Start looking for agents by asking other business owners for recommendations and conferring with local trade groups.
When it’s time to begin the process, you can either have your current agent create a document that defines bid specifications for other agencies, or you can solicit proposals from potential bidders, including your agency, he says. In Simmonds’ opinion, many business owners go overboard with the number of insurance agencies they consider. He recommends narrowing your prospects to two agencies.
Choose the Right Agent
When you are considering more than one insurance agent, it’s important to identify the qualities that show a commitment to best practices. “You need to be doing business with someone who has been in the business for a while,” Simmonds says. Experience is important, not only for the knowledge this agent will bring to the table, but because it shows a commitment to the profession. The key is to find a dedicated professional, not a salesman. Professional designations such as CPCU—Chartered Property Casualty Underwriter—also give you insight into an individual’s commitment to his or her career, he says. Also consider factors such as geographic proximity and whether or not the agent specializes in your industry, he says.
Another telling sign is the quantity and detail of questions a prospective agent asks you. “You want to probably find somebody who is going to ask more questions in terms of your business and your needs,” says Richard A. McGrath, president of McGrath Insurance Group, Inc. in Sturbridge, Mass. An agent who is looking out for your best interests will want to know as much about your business’s history and your goals as possible.
Choosing your insurance provider might seem like a very cerebral process, but remember that the insurance agent you select will be the one standing beside you should the unimaginable happen. You need to listen to your instincts, and consider, “Which of these guys would I want to stand next to me if my business was in ashes?” Simmonds says. “When you get right down to it, it comes down to a gut reaction.” In many respects, the answer to this question is the most telling part of the selection process.
Ace the Inspection
When an insurance agent visits your business, he or she will draw a lot of conclusions about whether you are a worthwhile risk. If you are deemed a desirable risk, that agent will work a whole lot harder to earn and keep your business. “I’m always amazed by how informal small business owners are about inspection,” Simmonds says. Take time to consider how even small things could impact the impression that you leave. Get rid of extension cords; examine your fire extinguisher certificate, sweep-up cigarette butts from the smoking area. “I think it’s very critical,” McGrath says. “You want to make sure that you're putting your best foot forward.”
Beyond the inspection, McGrath considers the following to help determine the risk associated with a potential client: Do they have a marketing and business plan? How is the business financed? Will this business be viable?
Entering into a relationship with a client is similar to becoming an advisor and partner with that business. For this reason, McGrath studies the business as an investor would. Having higher deductibles is a good cost saving measure, and also sends the message that you are a good risk because you are willing to share the losses should something happen. You may also be able to drive down insurance premiums by having your workers attend safety seminars on issues that relate to their positions, such as defensive driving courses or classes on safe lifting procedures, McGrath says. As McGrath puts it, “Safety yields dividends.”