Does the following scenario sound familiar?  Your commercial insurance coverage is coming up for renewal in 3 —4 months.  Like clockwork, your phone starts ringing off the hook with insurance brokers asking to “quote” your business (how do they all know your renewal date anyway?).  You want to be a smart [...]]]> Written by Matt Starkey

Does the following scenario sound familiar?  Your commercial insurance coverage is coming up for renewal in 3 —4 months.  Like clockwork, your phone starts ringing off the hook with insurance brokers asking to “quote” your business (how do they all know your renewal date anyway?).  You want to be a smart consumer, so you say yes to 3 or 4 of the most promising sounding candidates, and which begins a mind numbing process of time-consuming meetings with brokers, carrier reps touring your facility, brokers requesting access to their favorite carriers, sitting through final presentations, and on and on…  And after all is said and done, more often than not you end up staying with your current broker anyway, because everyone comes in at pretty much the same price.

Is there a better approach? Definitely! Before we discuss that, however, it’s important to understand a few facts about the commercial insurance industry, and the brokerage distribution system. Employers who grasp these facts understand that shopping their insurance the old fashioned way, with multiple brokers, is often counterproductive and not the best approach.

Fact No. 1.  Times have changed. As recently as 10 – 15 years ago, insurance carrier appointments were much more difficult to obtain, and therefore most brokers represented only a few premier insurance carriers.  Thus, which carriers a broker represented, and the “appetites” of those carriers for a particular risk, dictated what price a broker was able to obtain.  Through both carrier and broker consolidation this is no longer the case.  By and large, most brokers can now access the same general group of carriers, so which carriers a broker represents is no longer a particularly significant distinguishing factor.

Fact No. 2.  Only a few carriers are truly competitive. Did you ever wonder why brokers are always asking you to assign such and such a carrier to them?  And did you ever notice that you hear about and see quotes from the same carriers year after year?  The reason is that typically only a small handful of carriers will ever be truly competitive on your account.  Like most businesses, insurance carriers try to determine the niches that they want to compete in.  While they might offer a quote to a business that falls outside these categories, the quote will probably not be particularly competitive.

Fact No. 3.   All brokers are not created equal. True, as stated above most brokers represent the same general group of carriers.  However, brokers can vary widely in the services they provide.  Many brokers seem to feel their only function is to place coverage and then forget about you until renewal time!  A small minority of sophisticated brokers, on the other hand, include creative value-added services in their repertoire, often at little or no charge.  Some of these include services like those you’ll read about in this magazine, for example Labor Legal consulting, Human Resource questions, Employee Handbook review, and the like.

In light of the above facts,what happens when you simply allow 3-4 brokers to shop the market in a misguided attempt to “compete” for your account?  In my opinion you shortchange yourself.  You’ve basically created a race between brokers to see who can get their application out to the key carriers the fastest (remember there are only a few carriers that will be truly competitive on your account anyway), and you’ve done nothing to guarantee that you’ll end up with the best broker, best when measured by objective standards.

The Solution

Interview and select your agent first, and then have that broker approach the marketplace to find you the best possible price. I can almost hear some of you objecting “What?  Then it’s not  competitive situation!”  Sure it is, only now I’m suggesting you make brokers compete on a basis that’s a lot tougher; namely “What are you going to do for me?” rather than see who can get to the photocopier and fax machine the quickest.

When you think about it, doesn’t this really make the most sense?  Do you select your CPA based on who charges the lowest rates?  How about your attorney?  The selection of your commercial insurance broker should not be trivialized either Instead, I recommend that you interview brokers to determine who should represent your company to the marketplace. Ask them a simple question like “Why should I appoint you as my broker?”, or “Tell me what you’ll do for me beside simply quoting and placing my coverage?”  The answers to these questions will make it immediately obvious whether you’re dealing with a broker who deserves to represent your account or not!

Since Work Comp [...]]]> The State of Wisconsin is following the lead of NCCI, the national organization who oversees Worker’s Compensation insurance, and will change how the Experience Modification is calculated starting in October of 2013.  The change is designed to account for a higher average injury cost and will be installed over a 3 year period.

Since Work Comp is no more than injury financing, paid for by each employer, the Experience Modification is the mathematical calucalation used to determine the ultimate cost of the insurance that the employer pays.  It can offer a reward to employers for having less injuries than similar sized businesses in the same industry as well as act as a penalty for employers that have had more than expected injuries than their peers.  It is very important to understand that the Experience Modification looks at frequency much more than severity.  The logic behind it is simple: the more losses you have, the more likely that business is to suffer a large loss.

Under the current calculations, an injury claim $5,000 and under is considered a “primary” loss and given more weight in the overall Experience Modification as a way to measure frequency.  The 2013 change will raise the “primary” loss threshold to $15,000, thereby increasing the impact on the Modification as more claims will be lumped into the frequency part of the calculation.

To minimize the impact of this change, it is essential to act now as your Experience Modification uses injury data from 3 of the past 4 years.  Creating a safety-first culture within your workforce is a must to try and help eliminate injuires all together.  If you are not able to eliminate injuries completely, make sure to partner with an occupational health clinic and install a strong Return To Work or Light Duty Program.  Your insurance agent should be able to recommend clinic partnerships available in your area as well as help you get a Return To Work Program started.  Also ask them to visit with your employees to explain how the cost of injuries and Work Comp insurance affects their paycheck.