Dodge the insurance snow job

A well-designed business-insurance program is essential when it comes to protecting your business from the many risks you face every day. This is especially true in the snow- and ice-management field, where dangers and accidents seem almost inherent. Thus, understanding basic insurance principles can helpyou ensure that you adequately insure your business should you experience some type of accident.

Even if you already have a policy in place, you should review it every year to make sure your needs haven't changed. In so doing, make sure you know how to identify your actual needs, the best way to choose an insurance agency and to differentiate between insurance companies.

How to identify your insurance needs Your insurance needs will become more clear if you gather some specific information before meeting with an insurance agent or broker. Compile the following documents before you make an appointment:

*Current business-insurance policies

*Updated payroll and sales records

*Current profit-and-loss statement

*Loss information from the current year and three prior years

*Your Occupational Safety and Health Administration (OSHA) log (if available)

*Current schedule of vehicles/motor-vehicle records

*Safety programs/procedures and safety-meeting records

*Your company's promotional literature

*Copies of standard contracts used for clients and subcontractors.

Once you have your papers in order, it's time to assess how much risk you should retain through your policy. Basically, your insurance policy allows you to transfer the risk of financial uncertainty to an insurance company for a known premium. So first you want to calculate how much financial uncertainty you're willing to take on and how much risk you want the insurance company to assume.

The risk you retain is the deductible, and the risk the insurance company assumes is within the limit of liability over and above the deductible. Generally, the premium you pay depends on the deductible or risk you're willing to assume if a loss occurs. By choosing a higher deductible, you retain more risk but pay a lower premium. Of course, the lower you set your deductible, the higher your premium is.

If you take this approach, make sure you build the average annual cost of smaller losses into your budget process. You also need to determine what your coverage needs are. The checklist in the table (at right) will helpyou determine some of your coverage needs.

Once you've determined how much risk you're willing to assume, how much risk you want the insurance company to assume and the coverages you need, then you're ready to begin your search for an insurance agent.

How to choose an insurance agency You have two types of agents/agencies from which to choose: exclusive agents (known as direct writers) and independent agents. A direct writer only sells the policies of the insurance company that he or she represents, whereas an independent agent represents many companies.

How do you know which agent/agency to select? You'll need to do some homework and answer the following questions:

*How are you treated when you call the agency? Is the agency courteous and responsive? Does the staff quickly follow upon your requests for information or do you have to prompt them?

*What steps does the agency take to deliver insurance quotes on time? What does the agency do to ensure efficient claim-handling?

*Is the agency new on the scene? How experienced are the agents who'll be handling your account? How long have they been at that agency? Is the agent familiar with the snow- and ice-management industry?

*Who are some of the insurance companies that the agency represents? What are the financial ratings of the companies they represent? In particular, what ratings do they receive from A.M. Best Co., the most widely respected insurance-industry analyst?

*Does the agency protect itself from errors and omissions with liability coverage?

*Is the agency willing to provide references on who you can call?

*Does the agency represent an insurance company who knows your industry?

How to choose an insurance company Once you've selected an agency, consider which insurance company will provide the best protection for your business. (Of course, this goes hand-in-hand with choosing an agent if that agent only represents one company.) Whatever you do, resist buying a policy without fully considering the company backing the policy. Don't buy a policy simply because it's the least expensive.

With so many policies, coverage options and different premiums, it's easy to lose sight of the most important factor of all: the financial strength of the insurance company. Why? Because it is dangerous to buy insurance from a company that doesn't have the financial reserves to pay your claims. After all, you buy insurance to cover your risks, not to create new ones.

Too many consumers make the mistake of thinking insurance companies are immune from financial difficulties. In fact, insurers do fail. In the last 10 years, more than 100 property/casualty companies have declared insolvency. It's obviously important for an insurance company to charge enough to cover its own losses, but if you find a company with low rates, it may lead to inadequate protection. Sure, everyone wants to pay the least and get the most, but the company behind the least-expensive policy might not be as reliable as you'd like.

None of this means you shouldn't compare prices--just don't confuse price with value. Ask your agent for the financial rating and surplus-to-loss ratio of the insurance company being quoted. The surplus-to-loss ratio reflects the ability of the company to pay potential claims. Ratios of 3-to-1 or lower (such as 2-to-1) generally indicate an insurer has adequate resources to meet all obligations.

You also want a company that responds promptly and efficiently to a potential claim. Additionally, consider how much experience the company has in handling the types of claims to which a snow-and-ice contractor is subjected.

Some companies provide a broad range of loss-control and risk-management services to helpyou avoid claims or lower your costs if you have a claim. Other companies provide little or no help. Make sure your insurance company has readily available loss-control experts to helpcontrol your exposure to loss. A comprehensive program should also include seminars, newsletters and in-house reviews of your loss-control efforts.

Beatrice M. Grant is vice president of underwriting, Commercial Services Industry Group, for CNA Commercial Insurance (Chicago).

When you review your quote, ask the following questions:

*Have payrolls been correctly separated? Are payroll estimates accurate?

*Is the automobile schedule accurate?

*Is the umbrella written on a "Pay on behalf of..." or "We will indemnify you..." basis?

*If any of your liability is based on sales, are the sales figures accurate?

*Are policy limits and coverage written on a "Claims made..." or "Occurrence..." form?

*What is the difference between actual cash value and replacement cost?

*What about payment plans?

You can take several basic steps to helpreduce the cost of your insurance premiums. The following list includes just a few things you can do. Consult with your agent and loss-control representative to find out more about how to contain insurance costs.

1) Raise your deductibles

2) Establish a safety program

3) Adhere to professional loss-control recommendations

4) Keepyour workplace clean and orderly

5) Carefully store all combustible products/equipment

6) Be sure all fire extinguishers are accessible and in good condition

7) Establish emergency procedures and conduct employee drills

8) Install a sprinkler system

9) Regularly inspect existing indoor sprinkler systems

10) Review the motor-vehicle reports of your drivers on an annual basis

11) Establish fleet-safety and fleet-maintenance programs

12) Keep accurate records of payroll divisions

13) Maintain an accurate OSHA log

14) Carefully review and track the progress of workers' compensation claims

15) Implement an occupational injury-management program that helps bring injured employees back to some form of constructive employment as soon as possible.

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