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Buying and renewing commercial insurance can be a loathsome process. To borrow a thought from Adam Smith’s Wealth of Nations (published in 1776), “Moderate, however, as the premium of insurance commonly is, many people despise the risk too much to care to pay it.”
This guide was created to make your insurance renewal process as smart, easy, and cost-effective as possible. It contains tips to give you, the insurance buyer, the confidence and savvy to identify gaps in service when purchasing insurance.
Here’s what we know: most businesses are underserved by their current broker. Over the past year, we sent out several surveys to mid-market businesses to measure broker loyalty. Using a Net Promoter Score (NPS) — the percentage difference of promoters minus detractors — we discovered companies with 10 to 499 employees rated their brokers negatively with a NPS of -15 (companies who were happy that their brokers reduced their premiums had a NPS of 16). In other words, most businesses would not recommend their brokers to their peers.
Please know we didn’t write this guide to persuade you to buy more insurance for your business. Instead, we want to empower you to reduce time spent managing the renewal while simultaneously improving the desired outcome: right coverage at the best price.
Insurance isn’t sexy, we get it. Most people don’t like thinking about it more than a few times a year. But we do want you to think about it when it’s time for renewal.
To help you, we offer 3 Power Moves that help you maximize the value of your broker during renewal time. We also have general best practices and recommendations for your insurance policy renewal process.
What Are the Pros & Cons of Renewals?
Mid-market business owners like you tend to have more personal wealth tied up in your company. It’s vital you take steps to protect you and/or your family from events that could disrupt operations, reduce profits, or even worse — result in bankruptcy.
Insurance helps growing companies reach success by reducing uncertainties. It shifts away the economic burden of risk so managers can focus their attention on running and growing the business.
Before we get into these Power Moves, let’s look at how commercial insurance is designed. In the U.S., property and liability insurance is distributed in one of three ways:
- Direct writer system
- Exclusive agency system
- Independent agency system
Each system has its advantages. Embroker, for example, is an independent agency. We get access and negotiating prowess with several high quality carriers, which empowers us to tailor the best policies and premiums for our clients. A broker without exclusive representation of an insurance company means a broker that’s better positioned to represent the interests of their client.
The direct writer and exclusive agency systems market insurance through salaried salespeople or commissioned agents who only sell the insurance policies of a single company. Farmers Group, Nationwide, and State Farm are examples. These systems tend to provide higher quality claims and risk control, but may not be as skilled or knowledgeable as independent agents.
Keep in mind that an insurance agent is a legal agent of the insurance company and not the buyer. Conversely, independent agents are legal agents of the insured (you).
One system might fit a business better depending on its stage of growth. For example, an early-stage company with small risk exposure might buy its first policy using an online quote calculator (the modern version of the direct writer system). This is kind of like filing taxes using Turbotax versus a tax professional. It’s secure, fast, and easy — but it’s essentially “cookie cutter” coverage.
If your company needs to minimize premiums, increase coverage, and expose gaps in your current policy, it’s best to work with an independent broker with specific industry expertise.
What Are Best Practices for the Insurance Policy Renewal Process?
Before we take a deep dive into power moves, there are some general best practices in insurance that will help you be confident in getting the strongest, most comprehensive coverage at the most cost-effective price on the market. These tips include:
- Not all insurance policies automatically renew – you need to be an active participant in your renewal.
- Your agent/broker should advise you which policies only need information updates and which require renewal applications.
- Remember – even auto-renewing policies have Terms or Conditions that require you to update changes to your exposure information. This may result in premium changes, but not making updates could result in challenges should a claim arise.
- Insurers may not be required to send a notice of non-renewal; the policy will just expire.
- Similarly, some states and/or certain types of insurance policies may not subject to regulations requiring that the insurer send a formal notification should coverage terms change, premiums increase or other changes to limits or retentions/deductibles are made as result of your risk being underwritten or renewed.
- Did you wait too long to submit and application or engage a broker? Insurers may not be required to offer an extension to your policy term to give you more time to manage your renewal. Consequently, your policy could expire, and if there’s a gap between the expiration and your new policy’s effective date, you may not have insurance coverage for that time because insurers are generally not required to back-date to close the gap.
- In a similar fashion, quote expiration dates matter – if the quote expires, insurers may re-quote or decline to offer another quote.
- If there’s a material change to your risk between the time you submit your application and giving a binding order, you generally must disclose that change – whether a claim, a change in control, significant changes to exposure data that’s used to derive premium, failure to disclose could result in coverage being questioned.
POWER MOVE #1: Assess Previous Renewal Outcomes
Your renewal date is quickly approaching. How do you know if you should keep working with your current broker? What value do they provide from the 10-20% commission they make off your yearly premium?
To answer that, consider these two indicators:
- Last year’s renewal timeline
- Number of quotes your broker provided
The best time to start work on policy renewals is 60 – 90 days before the renewal date. Starting this early gives your broker ample time to review your risk portfolio and optimize your coverages and premiums.
If your broker doesn’t contact or work with you within 30 days of renewal, you can be fairly confident they’re not really earning their share or providing you much value.
Late paperwork can push you, the buyer, into binding coverage that’s not properly understood or negotiated. (Don’t feel left out if you don’t get this level of service from your broker. 32% of businesses we surveyed said they started work on their commercial insurance renewal 30 days out from renewal date.)
A complacent or unengaged broker can do serious damage to your next policy. For example, let’s say you’ve had the same broker for a few years. During this time, your risk exposure remains about the same, and you’ve filed no claims on your policy… yet your premiums continue to rise. This is a red flag that your broker isn’t properly marketing you for better premiums and terms and conditions. TL;DR: you could be leaving significant money on the table with uncovered risks.
If you’re not sure how competitive your renewal quotes were, or if you auto-renewed your policy, you can assume you’re not getting much value from your broker.
You may not even realize you’re being underserved by your broker until a competing broker audits your coverage to win your business. 28% of businesses we surveyed said their brokers only secured one quote for them during renewal. Another 16% couldn’t recall the amount of quotes their broker procured, which indicates ambiguous value. Companies that received more quotes, however, did result in higher NPS scores — even when the price of premiums went up.
POWER MOVE #2: Evaluate and Hire the Right Broker
The most visible function of an insurance broker is to procure coverage for clients. Many companies also rely on their broker to advise on risk management functions such as loss control and risk financing advising. This is why it’s vital to work with a specialized broker.
Finding a broker with expertise that’s directly relevant to your business can range from basic Google search to colleague referral. In either case, it’s time-consuming. And while we get that relationships are important, even brokers who come highly referred may lack the industry knowledge your company needs.
When it comes to a broker’s credentials, check to see if they:
- Explain key terms and exclusions with clarity
- Ask: “What are the 3 – 5 key policy terms and exclusions for my business?”
- Have strong relations with carriers with risk appetite
- Ask: “What are the 3 – 5 carriers best for my business?”
- Use data to recommend coverage and price
- Ask: “What are industry peers covering, paying and saving with you?”
- Have experience binding coverage and filing claims in your industry
- Ask: “Which 3 – 5 clients are similar to my business?”
- Leverage advanced technology
- Ask: “How does the technology you use compare to your competitors?”
Once you’ve narrowed down your list of potential brokers, have them outline their recommendations for your risk program and the markets they’d use to arrange their coverages. Evaluate their proposals based on the criteria above, as well as the quality of their proposals.
At Embroker, we pair you with a broker who has deep expertise in your vertical. Then we enhance their work with useful data to improve your coverage, premiums, and risk portfolio.
Tip: Be careful when granting a broker permission to market your policy before you decide to work with them. Many insurers limit broker access to one agent per insurance buyer. So if broker A contacts X Insurance Company, broker B and C might get blocked from getting a quote from X. Market blocking limits competition in the marketplace, and it really works against you when brokers game the system by firing off applications to insurers for no other reason than to block other agents from procuring a bid. Remember — you want brokers to negotiate key terms and exclusions on your behalf while securing you multiple quotes. More on this in Power Move #3.
POWER MOVE #3: Negotiate Key Terms in Your Policy
Okay, you picked your broker and now they’re getting quotes from insurers (bonus points for starting early). They now work on your behalf with the underwriter to determine if the risk is insurable.
When a broker markets your business to insurance carriers, carriers have three options:
- Accept your offer and issue a policy
- Reject your offer because you don’t meet the underwriting guidelines
- Offer a counteroffer
Sadly, we don’t always get Option #1 on the first try. Insurance is still largely dependent on a painfully slow, archaic process of gathering and submitting paperwork. As an example, a Workers Compensation Policy requires:
- Proof of business as a legal entity
- Federal Employee ID Number
- Mailing address
- Physical addresses for all locations with employees
- Estimated annual payroll by class code and location
- Full-time versus part-time employee payroll by class code
- Five years of loss runs reports from your previous carrier (currently valued within 90 days of renewal)
- Supplemental application
Seems redundant? That’s because it is. 25% of the growing to mid-market businesses we surveyed report spending 2+ hours on submitting paperwork. This is where an online risk management tool would come in handy. A good risk management tool can also help you with:
Claims Forms or Kits
If you’ve ever had to process an on-the-job injury or illness claim, then you’ve dealt with know the paperwork. The forms used to process the claim — or claim kits, as they’re called — vary from state to state, consist of an employer’s report, a workers comp claim, and an accident report. (Claims, by the way, make up 50-80% of premiums, and they’re a major reason businesses purchase insurance).
If you work with other companies, at some point you’ll need to show each other your proofs of insurance, aka “certificate of insurance” or “COI” — often before you can start working together. COIs aren’t automatically provided by your insurance company without you first requesting it.
Yep, insurance paperwork is a drag. A good broker should be mindful of this and offer you some kind of technology-based risk management tool to help alleviate the burden. Embroker offers a secure online tool that lets you upload, store, and archive all your policies in one place — even ones you might have with other brokers. You can sign up for Embroker for free, anytime.
Keep in mind that the process of renewal is like a delicate dance between you, the broker, and the insurer. Many brokers don’t want to enter a bidding war on a specific policy, as it could strain their relations with insurers. But when all’s said and done, you should be presented with 2-3 well-articulated renewal quotes per policy, as well as benchmarking data that compares your coverages to similar companies in your industry (so you know when it’s time to shop your policy to other carriers).
The Ups and Downs of Switching Carriers
- Reduced premiums and/or improved coverage
- Additional loss control services not currently offered
- Reduced billing fees by consolidating coverages
- Breaking carrier continuity
- A new carrier might be less cooperative with an open claim
If you’ve opted for automatic renewals on your commercial insurance (an easy way to prevent a lapse of coverage), your broker should still reach out each year 60-90 days before the renewal date. They should, at minimum, verify there have been no major changes that would warrant a policy or carrier change. Be aggressive with your broker, so they don’t let you down.
Finish Strong with Your Renewal Proposal
Your insurance renewal is nearing the end. You’ve selected an expert broker who has rallied on your behalf with reputable insurers, and now you’ve got a policy that’s customized to your business.
Before you sign and bind coverage, do a basic review:
- Policy type: Did you get multiple policies? Are you missing any?
- Insurance carrier: Do you have one or several carriers? Are they reputable?
- Deductible: What’s your deductible on a claim? Does the cost match the value of the insured property, person, etc.?
- Premium: How much did your premium change from the previous year? Did your coverage expand or shrink?
- Insured: Who is actually insured under this policy?
It’s also important you examine your policy’s terms and exclusions. An exclusion is a policy provision that eliminates coverage for some type of risk. It reduces the scope of coverage provided by the insuring agreement, which is often broadly defined. Insurers use exclusions to remove coverage for risks they are unwilling to insure.
Transparency from your broker is critical at this point. They should negotiate these terms and exclusions for you while helping you understand them.
Exclusions fall into categories:
Catastrophic: Some risks are uninsurable because they could affect a large number of policyholders at once, i.e. natural disaster
Covered elsewhere: Many risks are excluded under one policy because they’re covered in another, i.e. auto liability claims under general liability policy which are covered in a commercial auto policy
Easily manipulated: Some risks are excluded because they’re easily preventable by the insured, i.e. water damage to personal property that’s been sitting out in the rain.
Not accidental: While fortuitous losses are covered, intentional ones often aren’t, i.e. bodily injury caused by a fight started by the insured.
Maintenance issues: Some risks aren’t insured because they occur naturally, i.e. wear and tear damage is excluded under commercial property and auto physical damage coverages.
Illegal: Policies can exclude losses when the law is broken, i.e. violating the CAN-SPAM Act can exclude bodily injury, property damage, or personal/advertising injury losses on general liability policy.
Insurable for a price: Almost anything is insurable if you’re willing to pay for it!
Now you’re equipped with 3 Power Moves to improve your upcoming insurance renewal. And remember — the secret to success is to start early and have the right documents. Start 60-90 days out from your renewal date so you can survey your past performance and give yourself plenty of time to negotiate better policy terms, and maybe even a better broker.
Now that you have a better understanding of insurance renewals, you may be wondering how all of this affects your business and where to go from here. If you need more help or information, you can reach out to our team of expert brokers. Or, if you prefer to get started on intelligent quotes, create your Embroker account today.
Let’s break down what types of business insurance policies most small businesses need, what risks those policies protect against, and why businesses buy them.