As a business owner, you buy insurance to protect your company against unexpected losses. You pay a premium based on the assumption that the insurer will fulfill its promise to pay future claims. Sadly, insurers don't always hold up their end of the bargain. Some become insolvent while others engage in unfair claims practices or other bad behavior. Fortunately, many reputable insurers offer business insurance. With a little effort on your part, you can find a company that's finally sound, pays claims on time, and offers the coverages you need.
What Type and How Much Insurance Do You Need?
The types and amounts of insurance you require depend on your industry, and the size and complexity of your business. Most small businesses should have basic coverages like general liability, commercial auto, and workers' compensation. Some may also need specialized coverages. For instance, a horse farm will need equine liability insurance while a law firm will need errors and omissions liability coverage. If you aren't sure what kind of insurance to purchase, ask your agent or insurer what types of coverages businesses like your typically buy.
Independent Agent or Insurer?
Before you begin shopping for an insurer, you'll need to decide how you want to buy insurance: directly from an insurance company or through an independent agent. Which option you should choose depends on your insurance knowledge and your need for personalized service. If you are familiar with commercial insurance, know what coverages you want, and prefer to handle insurance matters yourself, you may opt to buy insurance directly from an insurer. However, if you want to obtain quotes from several insurers or are purchasing insurance for the first time, you may benefit from the individualized service provided by an independent agent.
Criteria for the Ideal Insurer
Here are some things to consider when choosing an insurer.
A key consideration is an insurer's financial stability. Insurers are overseen by state insurance departments. Regulators ensure the companies meet the state's capital and surplus requirements. While regulators try to prevent insurer insolvencies, some insurers do fail. Thus, insurance buyers need to evaluate an insurer's financial strength before purchasing a policy.
Assessing an insurer's financial health is relatively easy since rating agencies have done the number crunching for you. These independent firms include A.M. Best, Standard and Poor's, Moody's, Fitch, and Kroll Bond Rating. The companies use different criteria to evaluate insurers so their ratings can vary. For this reason, it's a good idea to consider ratings from multiple agencies when assessing an insurer.
Licensed by Your State
Insurers must be licensed in every state in which they issue policies. You can ensure that an insurer is properly licensed by checking with your state's insurance department. Insurer licensing information may be available on the regulator's website. You can also verify an insurer's license status by using a lookup tool provided by the National Association of Insurance Commissioners (NAIC).
Non-admitted (excess and surplus line) insurers are not licensed by state insurance departments and don't participate in state guaranty funds. They typically specialize in high-hazard or unusual risks.
State regulators may require insurers to obtain a separate license for each type of coverage they sell. For instance, a company that sells both life and homeowners insurance may need two licenses: one for life insurance and the other for property and casualty insurance. Each license may be held by a separate subsidiary company.
The cost of an insurance policy can vary widely from one insurer to another. There are a number of factors that affect the policy premium. These include the rates charged, the limits provided, the scope of coverage included, and discounts provided by the insurer. Be sure you are comparing "apples to apples" when assessing quotes. Policy X may be significantly broader and, thus, cost more than Policy Y. However, if the extra coverage afforded by Policy X is not important to you, you may be better off buying the cheaper policy.
Focus on Your Industry
All insurers have a "risk appetite," a level of risk they're willing to accept to meet their financial objectives. Their appetite determines the types of businesses they choose to insure. Many insurers cater to certain kinds of businesses by offering them specialized products and competitive pricing. When shopping for an insurer, look for one that's actively seeking your type of business and understands your industry. For instance, if you own a daycare center, look for an insurer that offers policies designed for child care businesses.
Like insurers, some agents and brokers focus on certain industries or types of coverage. If your business is highly specialized or has unique risks, look for an agent who understands your type of operation.
Service and Satisfaction
Service refers to the speed, accuracy, and courtesy an insurer displays when it responds to customers' requests. Service is important when you need something (like a binder) right away. Independent agents often know which insurers provide the best service. You can also seek recommendations from trade associations, professional organizations, and other business owners.
Satisfaction reflects an insurer's success (or failure) to meet the needs of policyholders. Insurance buyers can assess insurers' ability to satisfy policyholders by reviewing satisfaction reports published by J.D. Power, a research company. J.D. Power conducts surveys of small business owners to determine how satisfied they are with their insurer's products, prices, billing system, communication, and service.
Another element to consider when evaluating an insurer is the company's reputation. An insurer builds up a positive reputation by creating a culture based on trust. Its reputation reflects the actions of its management, the quality of its sales forces, the handling of claims, and the transparency of its products. You can find a reputable insurer by asking friends, colleagues, competitors, and your insurance agent for recommendations.
As a policyholder, you expect your insurer to promptly pay any valid claim you file. Nevertheless, some insurers handle claims more efficiently and effectively than others. If you are using an independent agent to shop for an insurer, ask them about the companies' claim handling practices. You can also check with your state insurance department to see whether any complaints or enforcement actions have been filed against the insurer.