Why You Need D&O Insurance

Written by Eric Petersen, CIC

Sure, you know that being a business owner is risky, but do you know you could get sued personally for the decisions you make for your company? Unfortunately, business owners of privately held companies can find themselves in a lawsuit from a business decision they made on behalf of their own company. Fortunately, you can protect yourself and the other officers of your company with a Directors & Officers Insurance policy. 

Often referred to as a D&O policy, this coverage is typically associated with large publicly held companies or non-profits, however every private company has some exposure that a D&O policy can protect against. 

A D&O policy is a liability policy designed to protect the personal assets of the directors and officers of a company if they are sued by interested parties for actual or alleged wrongful acts in managing the company. Employees, vendors, competitors, investors, or customers all could bring a case against the directors of a tree service for a decision or series of decisions that they make on behalf of the company. 

The D&O policy pays for defense costs that the directors incur as well as any damages that are awarded as long as the lawsuit wasn’t from an illegal act. There are a number of reasons a director could be sued individually, however a few of the more common are:

• Decisions that lead to financial loss or bankruptcy
• Overstating company’s financial strength or assets
• Poor use of company funds
• Lack of company oversight (corporate governance)
• Failure to comply with workplace safety and employee management laws

In today’s world there is more focus on personal accountability and more and more people are attempting to hold business leaders accountable for their actions. This happens not only from an employee or investor standpoint, but also from the customers and other competitors if the neglect is bad enough where they can show how they were financially damaged from the tree service owner’s decision or lack of action. 

Tree care companies experiencing rapid growth also are subjected to greater exposure from these types of lawsuits as they navigate their way through all of the change that their company is going through. Most business owners have not been through rapid growth before and certainly make mistakes along the way. Sometimes those mistakes end up hurting others financially. 

D&O policies have a number of coverages that can be included in the policy. For instance, many D&O policies will give have the option to include Employment Practices Liability for hiring/firing, discrimination and sexual harassment lawsuits. You may also be able to purchase Fiduciary coverage to protect the person in charge of the retirement account and company funds. Some D&O policies will also include Crime coverage, protecting the business from theft of funds or company assets.

Because each D&O policy is unique, make sure you talk through your concerns with your insurance agent or reach out to an ArboRisk team member today. If you are struggling with developing a risk management program for your company, check out our Thrive New Heights Risk Management Package today!

How Industry Credentials Help Lower Insurance Cost

Written by Eric Petersen, CIC

One of the most common questions that I get asked is “Eric, how do I lower my insurance cost?”. While there are many factors that go into the pricing of an insurance policy, it really all boils down to one thing:profit for the insurance company. The insurance company needs to make a profit to be able to deliver on their promise; to pay for insurance claims that their policyholders experience. 

To provide the lowest insurance rates possible, an insurance company must feel confident that they will make a profit on a given tree care company. It is the responsibility of the tree care company to prove why they deserve the insurance company’s confidence and how they will not have claims in the future. When the insurance company understands who the tree care company is and the internal risk management practices that they are consistently performing, then they will offer the best rates possible. Unfortunately, most insurance companies and agents don’t understand the tree care industry enough to ask the right questions and, without intentional communication about the credentials and the expertise of the tree care company, the insurance company just goes off of general answers to general questions.

Developing a good relationship with the insurance company and an agent is crucial in getting a good rate and coverage. Additionally, looking for insurance companies that understand the profession and specialize in it is also helpful. 

Before we get into how you position yourself to the insurance company, I want to explain a bit more about the insurance company. The insurance company makes a profit either by collecting more premium from their policyholders than what they have to pay out in claims plus their operating expenses or by using the premium dollars to make investment gains before they need to pay their policyholder’s claims. 

Historically, insurance companies in the United States need about forty percent (40%) of your insurance premium just to cover their operating expenses, which leaves sixty percent (60%) left to pay for actual claims. Because the insurance companies cannot exactly predict the future, they use volumes of data to try and estimate the amount they will pay in future claims and price their policies accordingly. Unfortunately, data not only comes from professional tree care companies, but also illegitimate businesses and homeowner’s trying to do tree work themselves. This can create an unbalanced approach to pricing the insurance policy for a professional tree care company if they don’t provide specific information on their business to the insurance company. 

To truly control your insurance cost, you must provide proof to the insurance company on why you are different from the masses and why you will not have as many claims as others. Help the insurance company see what risk management practices you are performing so they can offer the lowest insurance premium to you. 

Whenever possible, I recommend ensuring that you discuss the following three points with your insurance agent. 

1. Industry Credentials – The most important data that helps insurance companies predict future losses for tree care companies is the experience and knowledge level of the people inside the business. I have not met one arborist who does not believe that their past work experience makes them a very safe insurance risk, however, their personal belief about themselves and their company does not go far with the insurance company. This is why credentials from the International Society of Arboriculture (ISA) and other industry organizations are vital to receiving the lowest insurance pricing. Showing what ISA credentials you and your teammates have is the foundation for building trust and confidence with the insurance company. A credential from the world’s largest arboricultural association shows the insurance company that you are a serious professional and company, who wants to perform tree work correctly and continue to learn by keeping the credential valid. Insurance companies want to see that you are committed to professionalism within your trade. Ensure your insurance company knows how many ISA Certified Arborists®, ISA Board Certified Master Arborists®, ISA Tree Risk Assessment Qualification holders, ISA Certified Tree Worker Climber and Aerial Lift Specialists® you have on staff and what percentage of your crew has a professional credential. 

2. Internal Risk Management – In addition to industry credentials that you and your teammates possess, make sure you provide copies of the written programs and policies that you have in place that help minimize accidents and injuries. Insurance companies want to see that you have a training and development plan for each employee, written safety program, policies on driving record management and vehicle usage and jobsite assessments in place. These risk management practices enhance the insurance company’s confidence in your company, bettering your chances of receiving the lowest insurance price possible. 

3. Special Insurance Programs – In the United States,there are a handful of insurance companies that only work with tree care companies that have an ISA Certified Arborist on staff. It is their first qualifier for coverage as they understand what the credential means and how it relates to maintaining a profitable business. Make sure you ask your agent if there are any insurance companies that they work with that will only allow professional tree care companies into their client portfolio. 

Don’t let the insurance company make assumptions about your business when they are pricing your insurance coverage. Control the narrative by providing them with the data that will help them understand how you can help them make a profit by having less claims in the future.

Taking risk management seriously will help you build a stronger company that will be more resistant to negative situations that arise. If you are struggling with developing a risk management program for your company, please reach out to an ArboRisk team member or sign up for our Thrive New Heights Risk Management Package today!

Simplify Risk Management

Written by Eric Petersen, CIC

In this article, I will give a way to simplify risk management for your tree care company so you are prepared before something bad happens. 

With your leadership team, take each of the categories below and think about each of them as they pertain to your business. Think about what could go wrong in those areas and what could be (or is currently being) done to minimize the risk. I have included examples inside of each category to help you get started. 

Five Categories of Risk for your Tree Care Company:

1. Other People – How can other people affect your business? Think about your customers, the general public, state and federal governments. Common exposures result from injury or property damage to others, lawsuits and penalties and fines. 

Ex: Customer – their property is damaged while working on their tree in their yard. 

Risk Management Solution: Create/review job briefing to ensure proper jobsite set up to minimize property damage while the work is being done.

2. Your People – How can your people affect your business? Think about your employees and subcontractors that you work with. What happens when they get injured, leave unexpectedly or file an employment lawsuit against you? 

Ex: Employee – a group of employees decide to leave your company unexpectedly to start their own business. 

Risk Management Solution: Create a career path to show employees how they can advance within your company to build loyalty. 

3. Your Stuff – What physical assets does your business own? Think about your shop, equipment, tools, your brand, etc. 

Ex: Building – fire or tornado damages your shop building 

Risk Management Solution: Purchase an insurance policy with property limits to cover the building and all items inside. Make an inventory list to assist in the recovery process.

4. Your Vehicle(s) – What vehicles and trailers does your company own or use? Think about all vehicles including rented trucks and employee’s vehicles. 

Ex: Flood – major storm enters your area and floods your yard which damages vehicles

Risk Management Solution: Create an emergency plan to move vehicles to a safe spot before the storm hits your area. 

5. Yourself – What could happen to your business if you, the owner, are not around or not physically able to do everything that you do for the business? Think about each of your responsibilities and how someone else would have to take them on for the business to continue.

Ex: Disability – a work related injury causes you to be physically unable to work for 3 months

Risk Management Solution: Create an internal employee development plan that teaches certain team members how to do the physical tasks that you are responsible for.

And this list is the start to your risk management program! 

If you want to dig into it deeper, you can rank each risk that you have listed from the most likely to happen to the least likely to happen. It also may help to put a severity rating on them; something that is most likely to happen, that has potentially severe results, should be dealt with right away. A severe auto accident is an example of this type of risk to your company. For more information on categorizing each risk, read our article on Insurance is NOT Risk Management to find a risk matrix. 

After you have the risks ranked, delegate each of them to your team members to begin to manage. This is now the beginning of your risk management plan! The only thing left to do is to set a follow up time for your leadership team to circle back on these items to ensure they get taken care of or to make adjustments where needed.

Taking risk management seriously will help you build a stronger company that will be more resistant to negative situations that arise. If you are struggling with developing a risk management program for your company, please reach out to an ArboRisk team member or sign up for our Thrive New Heights Risk Management Package today!