Few small businesses have the resources to self-insure against large risks, such as liability and business asset protection. Whether you’re getting business insurance for the first time, or you’re looking to better your existing insurance, it pays to take the time to investigate all your options to keep your costs down. After all, you want insurance to help you manage risks cost-effectively – and not spend so much that buying insurance becomes a hardship in itself.
Here are some steps I’ve found to be especially helpful to control costs of insurance:
Shop around for price quotes – It goes without saying, you need to compare prices. Get multiple quotes so you can compare. Luckily, the Web makes this easier than ever. Insurance Edge is one place where you can get quotes from multiple insurance providers. If you’re dealing with your local insurance agent or broker, don’t forget to ASK them to shop around for better rates.
Compare coverage – Don’t stop at just comparing insurance premiums. Also compare different coverage options. See what’s available, and what you realistically need coverage for.
Seek advice from a qualified insurance professional – You’re going to want somebody in your court to explain options and seek out the best coverage for your situation. A knowledgeable insurance agent or broker you can talk with is invaluable. A good agent will be proactive, bringing up issues and savings opportunities you may not have thought of. He or she will help you cut through industry terminology, and “compare apples to apples.”
Look for an independent agent or broker who represents more than one carrier, for the widest options. Also, look for professionals who are experienced in business coverage. While it might be tempting to turn to the agent you use for your homeowner’s insurance, business insurance just may not be his or her area of expertise. Your personal agent may technically be able to place business insurance, but may be so out of his/her element, that you won’t get the expert advice and wide range of choices you have a right to expect.
Increase deductibles – Higher deductibles get you lower premiums. Chances are you may not submit a very small claim of a few hundred or even a few thousand dollars to your insurance carrier. So why insure for that amount if you’d probably pay it from your operating funds, anyway?
Investigate premium-reduction strategies such as inspections and security systems – For certain coverages, getting an inspection done may be enough to reduce your premiums significantly. Or installing security systems, fire prevention systems and the like can also reduce your premiums. I’d like to think your agent will bring up such cost-reduction strategies without being prompted, but I also know from experience that it doesn’t always happen that way. Make it a point to ask your agent questions such as “Are there any inspections we can have made to reduce our premiums?” and “Are there any systems such as burglar alarms we can put in place to reduce premiums?” Ask these questions every year at renewal time, too, as insurance companies do implement new programs.
Factor in the value of “defense” clauses – Litigation today is expensive. Even if the underlying lawsuit is frivolous and you win your case, the cost of defending a liability claim could be enough to bankrupt a small business. In my opinion, one of the greatest benefits of insurance is the insurer’s obligation to defend your business in the event of a lawsuit. So while premiums and deductibles are important, understand the insurer’s obligations to provide a defense. Here’s an even better tip: ask your insurance agent for the insurer’s reputation for handling claims and providing a defense. Will you have a fight on your hands just to get a defense? Paying a few dollars more for premiums may be worth it if the carrier has the reputation of vigorously and willingly defending its insured’s.
Create a risk management plan – Getting affordable rates for insurance premiums is important. But there’s more to managing your business risks and insurance costs than simply getting a good price on insurance premiums, or increasing deductibles. Think about the bigger picture. Are there actions you can take in how you conduct your business, to minimize your risks? For instance, taking steps to encourage a healthy workforce may reduce workers compensation claims. In the long run, avoiding potential claims is the single biggest step you can take to keep your risks (and costs) low. Do an assessment of your business’s risks using this online risk assessment tool at Nationwide. Or download this helpful Risk Management Guide (.doc) that the Small Business Administration makes available. And then create your action plan to minimize risks.
Review your coverage annually – At least once a year, review your coverage for duplications or unnecessary coverage. For instance, you may have sold a business unit or discontinued a line of business, and no longer need certain coverage. There’s savings right there.
Like most things in business, the more actively you manage risks and insurance of those risks, the better results you will get. So get active!