Bad Practices that Raise Your Cost of Insurance
Top Ten Ways to Increase Your Business Insurance Costs
Actions you take, or fail to take, can increase the cost of your firm's insurance coverage. Here are ten things your company should not do if you don't want to pay higher premiums for business insurance.
- Failing to provide ongoing training No industry is static. Technological advances lead to changes in equipment and processes. Social, political or legal changes can generate new risks. To keep abreast of these changes, employees need regular training. Improperly trained workers can cause accidents that result in workplace injuries or litigation against your firm. Poor claims experience means higher premiums in the future.
- Failing to maintain workplace safety Many workplace hazards, such as slips, trips and falls, are relatively easy to control. When a business ignores workplace safety, on-the-job injuries are likely to occur. Employers are obligated by federal law to maintain a safe workplace. Those that do not are subject to sanctions (including fines) by OSHA. An employer that has a history of workplace injuries and non-compliance with safety laws will pay more for workers compensation insurance.
- Failing to keep records Good recordkeeping is essential in today's business environment. Activities such as worker training and equipment maintenance must be documented. Without proper documentation, you could have difficulty proving to your workers compensation insurer, OSHA, or a court that these tasks were performed. A firm that maintains good records may be rewarded with discounts on insurance premiums.
- Failing to purchase insurance Some business owners believe that foregoing insurance is a good way to save money. Why should you buy general liability insurance when no claims or suits have been filed against your firm in the past? In reality, failing to buy liability insurance is equivalent to gambling on the future of your company. Moreover, gaps in coverage can make you unattractive to insurers. Insurance companies want to insure businesses that have a solid history of continuous coverage. When you do buy insurance, you may pay more for your policy than a similar business that's always been insured.
- Purchasing inadequate insurance While buying some insurance is better than buying none at all, business owners that skimp on insurance may be putting their company at risk. A company that purchases only the statutory limit of auto liability insurance is taking a chance that it will not incur a large loss. A company that fails to adequately insure its business property may be subject to a coinsurance penalty if it sustains a commercial property loss. The penalty for underinsurance may exceed the extra property premium the firm was trying to avoid.
- Ignoring specific risks Every businesses faces risks as a result of its geographic location. Such risks may include earthquakes, landslides, sinkholes, windstorms and other natural phenomena. Some risks, like civil unrest and auto theft, are more common in some locations than others. When the risk of loss is greater, the premium to insure your business against that risk will be higher. Earthquake insurance will cost more if your business is located in California than it if it is located in Florida. Still, it's important to recognize the risks that exist and to protect your business against them. It's naive to assume that a loss "won't happen to me."
- Self-insuring without adequate financial resources A business owner that wants to reduce premiums may view self-insurance as an easy remedy. This is a mistake. No business should self-insure any risk unless it has adequate financial resources to pay losses that result from those risks. Businesses that wish to self-insure their workers compensation obligations must comply with state laws. Most states specify a minimum amount of funds an employer must maintain as a self-insured retention. This amount may be insufficient to cover a large loss. Once you decide to switch back to a fully-insured program, you may pay more for insurance than you would have otherwise.
- Failing to comply with employment laws All businesses must comply with federal, state and local employment laws. Any attempt to skirt these laws can be a costly mistake. For instance, your company may be subject to fines if it misclassifies some employees as independent contractors in order to minimize workers' compensation premiums. Likewise, it will be subject to fines or lawsuits if it acts in a discriminatory manner or hires illegal workers.
- Hiring uninsured contractors or subcontractors Hiring contractors or subcontractors that are not properly insured can be risky. If an accident occurs in which someone is injured, the injured party may view your firm as a "deep pocket". Moreover, contractors may be obligated by law to provide workers compensation benefits to injured employees of uninsured subcontractors.
- Failing to purchase insurance from a reputable insurer Don't buy insurance without vetting the insurance company. Choose an insurer you can stick with long-term. You will pay more for insurance if you are continually switching from one insurer to another.
Article edited by Marianne Bonner