Lawsuits…fires…theft…fraud…injuries…cyberattacks…workers comp claims. Without careful planning, one disaster can destroy your business. To ensure that your business is protected, you must have the right types of insurance in place, with policies that offer adequate coverage levels for your needs.
Earlier this year I wrote about how to shop for insurance for your business. This month I’d like to address what it is that you are shopping for.
Insurance policies that most businesses should consider
Be sure to talk to your insurance broker about:
• Property and General Liability Insurance – A must, this protects your property against physical damage and your company against claims of bodily injury or property damage.
• Workers’ Compensation Insurance – Required in California if you have one or more employees. Be sure to see my previous article on “How to Control Your Workers’ Comp Premiums.”
• Vehicle Insurance – Mandatory if your company owns and operates any motor vehicles.
• Health Insurance – As of this writing, this is mandatory for companies of a certain size.
• Directors and Officers Insurance (D&O) – Protects your corporation’s directors and officers from personal liability in the event of a claim against the business.
• Key Person Life Insurance – Can be important if your business depends on the knowledge or expertise of a particular person.
• Employment Practices Liability Insurance – Provides coverage against employment-related claims, such as discrimination, harassment or wrongful termination.
• Business Interruption Insurance – Covers the loss of income that your business suffers after a disaster.
• Cybersecurity Insurance – Helps address the damage after cyberattacks and data breaches.
• Professional services firms – Errors & Omissions Insurance (also known as Professional Liability Insurance) to protect against negligence claims based on mistakes your company made or your company’s failure to perform.
Industry-specific insurance needs
• Petroleum industry – Environmental coverage in case there’s a spill.
• Construction industry – Policies to fulfill bonding requirements.
• Manufacturing industry – Product liability insurance.
Insurance is not a “set it and forget it” item
Because changes in your business often warrant changes in your insurance coverages, annual reviews with your insurance broker are a must. You’ll want to discuss the impact of:
• Purchases or sales of assets (including vehicles and equipment)
• Changes in sales volumes
• New products or services offered
• Leases ended or entered into
• Changes in key personnelOther significant changes
Need help sorting through all of this and working with the insurance broker to get the right coverages in place? Give me a call! As your part-time CFO, this is one of the many services that I provide.
Depending on your industry, your workers’ comp insurance might be a significant expense. In my last article, How to Control Your Workers’ Comp Premiums, I mentioned the need to pay attention to your workers’ comp classification codes. Because this is such an important issue, I’m going to explore it in depth here.
What Are Workers’ Comp Insurance Classification Codes?
Like any form of insurance, premiums for workers’ compensation insurance are based on risk factors. One of these is the likelihood of injury, which is determined based on the type of work performed. For example, a rodeo clown is more likely to get injured than a telephone operator. The classification codes, which in California are set by the Workers’ Compensation Insurance Rating Bureau (WCIRB), reflect this.
How Are Your Company’s Classification Codes Determined?
A representative of the WCRIB will periodically visit your company and do an inspection and audit to determine your classification codes.
How Do My Classification Codes Affect My Premiums?
There is a standard workers’ comp premium rate associated with each classification code. Base premiums are calculated by multiplying payroll x classification code x experience mod rate.
As part of this calculation you must report your payroll in each of your assigned classification codes. To keep your premiums as low as possible, be sure to:
• Ensure your assigned codes are correct – There might be two codes that are very similar, but one will cost you 10% more than the other. Sometimes employees are misclassified in the first place. Other times employees are misclassified because things have changed over time. For example, if you have purchased machinery that reduces the risk of what was being done manually in the past, the classification code might change.
• Report your payroll accurately – Avoid typos and mistakes.
• Project your payroll accurately – Each year your insurance company will require a projection of payroll for the upcoming year, listed by classification code. Your premium will be based on this projection, subject to adjustment after an audit at year-end.
How Do I Get My Workers’ Comp Classification Codes Changed?
If your codes need to be adjusted, contact the WCIRB and complain loudly enough to convince them to come back out and take another look at your operation. Your insurance broker may be able to help you with this.
Of course, if you need help getting your company’s costs under control, give me a call. As your part-time CFO, I’m here for you.
Workers’ Compensation Insurance premiums are based on what’s known as the “experience mod rate.” This is an actuarial number assigned to your company based on your past experience with workers’ comp claims.
Here’s how the experience mod works. Say the “base rate” for coverage is $100 per month. If your experience mod is 0.75, then your premium will be $75. But if your experience mod is 1.25, you’ll pay $125 for the same coverage.
Minimize Your Claims
The key to low premiums is to have a low experience mod rate, which requires minimizing your claims. This is especially important because your experience mod is based on a multi-year calculation – so you’ll feel the pain of each claim for more than one year.
Put a Solid Risk Management Plan in Place
To reduce injuries and workers’ comp claims, implement a Risk Management Plan that requires you to:
• Watch for trends – Review three years’ worth of claims to identify any patterns that emerge. For example, are you seeing a lot of lower back injuries? If so, why? And what can you do to address this problem?
• Have a written Safety Plan – This plan must be in compliance with Cal OSHA requirements, which vary by industry. Your workers’ comp broker may be able to provide a template for this.
• Conduct regular safety training – Get buy-in by asking employees what the company can do to make the workplace safer for them, and then take action on these recommendations.
• Perform regular safety inspections – While most office environments can get by with an annual inspection, others (such as construction and manufacturing firms) should inspect their workplace at least once each day.
No one is going to care more about controlling your costs than you will.
• Get multiple bids – Be sure to get two or three quotes, preferably from solid companies that will help you with risk management.
• Manage open claims – Work with the Claims Manager at your insurance provider to get claims closed as quickly as possible. If a claim is open at year end the insurer will establish a reserve for it. This reserve, which may be several times greater than what has actually been spent on treatment, goes into the calculation of your experience mod…even if it ultimately turns out to be more than actual costs.
Finally, pay attention to your insurance classification codes – a topic which I’ll examine in depth in my next article. Stay tuned!