I work daily to assist businesses with their insurance and risk management needs. And each day, I take notice of the myths that exist and circulate in the business insurance industry. Clients and prospects seem confused about similar topics, which I’d like to clear up in today’s video.
I think it’s safe to say that we can all agree about the widespread nature of misinformation in the insurance world. Like most sectors within financial services, consumers are conditioned to understand only the basics of the marketplace, led mainly by mainstream marketing and advertising campaigns. At our agency, we strongly emphasize educating our clients because most of what you are led to believe doesn’t touch the surface of where your focus should lie.
That said, let’s count down the five business insurance myths that we work hard to debunk.
I SHOULD INSURE MY BUSINESS USE AUTO ON A PERSONAL POLICY
Number five on the list is a misconception we often hear: business owners believe they can safely insure their commercial autos on a personal auto policy. Owners may decide to do so to save money or simply because they don’t see the need for a business auto policy. But hard-working businesspeople don’t realize that this mistake could harm your business.
First, it’s not necessarily true that personal auto coverage is less expensive than business auto insurance. Then, when considering the expense to the business, business auto may save many companies compared to the cost of personal auto protection.
But, more importantly, business auto insurance provides levels of protection you cannot achieve through a personal auto policy. Here are some of those protections to keep in mind:
- Automobile liability options that extend beyond symbol 7 or scheduled autos only. Usually, the business auto form allows policyholders broader form coverage, such as symbols 1 or 2.
- Furthermore, two critical coverage items that all companies with automobile liability exposure must consider include symbol 8, Hired Auto Liability, and symbol 9, Non-Owned Auto Liability. These coverage symbols are attainable at reasonable costs and make all the difference in the event of an auto-related loss.
- Most businesses that use autos to operate must provide additional named insured endorsements to their clients when acceding their property with their vehicle. A personal auto policy will not offer these critical endorsements and could cost the business a contract or relationship.
Check out my video on YouTube named 3 Reasons Your Business Must Have a Business Auto Insurance Policy for further details.
INSURANCE COMPANIES DENY CLAIMS MORE OFTEN THAN THEY PAY CLAIMS
Fourth on the list is the fallacy that insurance companies deny more claims than they pay. In my experience, a good insurance company looks for language in the policy that dictates they pay the claims versus the opposite. But it becomes even more important that, as a business owner and policyholder, you understand your protection and the language in the policy. The policy is a contract, and the agreement determines coverage application during a loss.
The percentage of claims that insurance companies pay on business insurance policies can vary widely depending on the type of policy, the specific circumstances of the claim, and the insurer’s policies and procedures. Generally, insurance companies aim to pay as many claims as possible, but they also must investigate claims thoroughly and ensure that they are valid before paying.
Here is some data to disprove this myth:
- The percentage of workers’ compensation paid nationwide in 2019, the most recent year of data I can find from the NCCI, was 60%.
- California is governed by the WCIRB (Workers’ Compensation Insurance Rating Bureau of California) and not the NCCI. According to the WCIRB, insurers paid 81% of workers’ compensation claims in 2020.
- According to a report from the Insurance Information Institute, 79% of liability claims in the United States were paid by insurers.
- The National Association of Insurance Commissioners (NAIC) published a report that states that insurance companies paid approximately 57% of all commercial property claims in 2019.
- The NAIC’s data shows 61% of all business auto liability claims nationwide were paid in 2019.
- And here is the most shocking of all. EPLI is included in the Insurance Information Institutes data on liability claims payouts, meaning the 79% pay rate in 2019 includes Employment Practices Liability Insurance.
I recently released a video on my YouTube channel regarding the rightened marketplace for EPLI, so I expect the number of claims paid within the EPLI product to decrease. But as you can see, according to the data, insurance companies do not deny more claims than they pay.
RED CARS COST MORE PREMIUM THAN OTHER COLORS
Next, let’s talk about how red cars cause premiums to increase more than other colors. I am kidding; let’s not discuss this myth.
ALL GENERAL LIABILITY POLICIES ARE THE SAME
Third, the top five countdowns of the most significant business insurance misconceptions revolve around the ever-important commercial general liability policy. Many business owners believe that the coverage provided by all CGL policies is the same. And I am not referring to the limits of insurance or the deductible; we all know those can differ. I am talking about the coverage provided, limited, or excluded by the policy forms and endorsements. I am talking about the ‘guts’ of the policy.
If you placed two CGL policies side by side, they would look very similar. But looks are deceiving, so I urge all policyholders to read their policies.
I recently wrote a blog and released a video — General Liability Explained in 10 Minutes — where I go into far more detail about the CGL policy than I will discuss in this video. Here are a few points to keep in mind when purchasing or reviewing the protections granted by your CGL policy:
- Price should NOT impact your decision. Of course, price is essential, and the policy should fit within your budget. But, like price, you should weigh your options as it relates to the forms in the policy.
- Pay close attention to the endorsements. CGL policies look similar from the Declarations page through the Definitions. But the endorsements that carriers add behind these sections make all the difference.
- If you are a contractor, read the exclusions and endorsements. We have seen it all, from CGL programs for plumbers with water damage exclusions to exclusions for projects performed on homes or commercial buildings over specific square footage. It’s one thing if you know these exclusions exist and make an informed decision, but don’t assume all options are created equal.
- Several CGL carriers adopt proprietary or manuscript policies and forms, meaning they are custom designed for a particular insured. Read and understand the extent of your protection.
I CAN SAVE MONEY ON MY INSURANCE BY UNDERCUTTING MY EXPOSURES
Second, on the top-five countdown of business insurance myths is the age-old legend that business owners can cut their insurance costs by underestimating their exposures. Think again!
The opposite is true! Why? Because insurance companies AUDIT their policyholders after each policy year. The audits are prevalent in workers’ compensation, general liability, commercial packages, business owners’ policies, and even business auto. In the rare case where the insurance company does not audit the exposures at the end of the term, you can almost guarantee that they will inspect your business at the policy’s inception. If adjustments are necessary, they will do so by premium-generating endorsements.
You may say that you will take your chances because if they do an audit, you will pay the same as you would have paid at the start of the term.
Insurance companies provide a lower rating basis for businesses with higher exposures. This is especially true regarding workers’ compensation ‘net’ rates.
However, the rate applied at the start of the policy continues if an additional premium comes due because of a final audit. So don’t cost yourself more money by underestimating.
Nobody knows your business better than you do, so looking at historical trends and estimating your exposures to the best of your ability is essential. Such disclosures may include gross sales, gross payrolls, the number of employees, or the number of units sold.
Also, remember that material misrepresentation can result in policy cancellation, claims denials, or, even worse, insurance fraud. So be careful not to fall for this dangerous myth.
THE INSURANCE COMPANIES NEVER REFUND PREMIUMS
The number one misbelief we hear from business clients constantly is that insurance companies never refund premiums due to a policy cancellation, endorsement, or final audit. This cannot be further from the truth.
State regulation requires that insurance companies return unearned premiums, particularly for carriers filed with the state and licensed to transact.
I believe the confusion surrounds our industry because of ‘minimum premiums (MP)’ or ‘minimum and deposit premiums (M&D).’ Minimum premiums apply to most business insurance policies, and minimum and deposit premiums to most surplus lines policies, but not all. Here are definitions of both minimum premiums and minimum earned premiums:
- The minimum premium is the least amount of premium to be charged for providing a particular insurance coverage.
- Minimum and deposit premium is a premium that is fully earned by the insurer at the inception of the policy and is nonrefundable if the policy is canceled.
It is crucial for business owners to understand the impacts of both when purchasing a business insurance policy because they will have implications on refunds in the event of a policy cancelation, endorsement, or final audit.
Now, let’s talk about the final audit.
Premium refunds are available due to the final audit if the carrier is ‘admitted.’ As a reminder, an admitted company is one licensed or authorized to sell insurance to the general public. Return premiums resulting from a final audit are typical of workers’ compensation policies. However, the refund cannot exceed the minimum premium, and most workers’ compensation policies carry an MP.
Regarding other products or lines of coverage, the availability of refunds at the final audit may come down to the strategy and knowledge implemented by your broker. For example, as I referenced previously, most general liability policies set this M&D at 100% when considering the minimum and deposit premiums. However, it is possible to negotiate the M&D on higher premium policies at 90%. This means that 10% of the annual premium is refundable due to the final audit or downward endorsement. This is an example of why a strong relationship with your broker and hiring a broker that understands your business is essential.
WHAT CAN FUSCO ORSINI & ASSOCIATES DO FOR YOU
I hope you found value in my video about the five business insurance myths that are not true. Remember to like this video, comment below, and subscribe to my channel. I appreciate your support.
Our agency places a significant emphasis on educating our clients and prospects. I am confident that most of our clients understand that the five misconceptions I discuss in this video are just myths.
Call us if you’re looking for an agency partner that cares more about you than simply selling an insurance policy. Our number is 858-384-1506 and our email is firstname.lastname@example.org. Talk soon!