The first thing to do when you're ready to look into insurance coverage for your business is to find a knowledgeable insurance agent. You'll want to find someone who will take the time to analyze your business operations and come up with a sensible program for your company.
Generally, it’s best to work with a single insurance agent for all your business needs so that coverages can be coordinated. But be sure to find out whether any agent you’re speaking to is locked into one insurance company. If so, it may be wise to look elsewhere. The agent you choose should be willing to obtain quotes from several companies so that you don’t pay more than is necessary.
To find a competent insurance agent or broker, talk to local businesspeople, particularly those in your line of work. Other people in the same field should be able to give you good leads on insurance agents. Working with an agent who knows your business is advantageous because that person is already a fair way along the learning curve when it comes to helping you select an affordable and appropriate package.
Steer clear of an agent who, without learning the specifics of your business, whips out a package policy and claims it will solve all your problems. Yes, the insurance industry has developed some excellent packages that cover the basic needs of various businesses. For example, there are packages offered for offices, retail sales operations, service businesses, hotels, industrial and processing companies, and contractors. One of these may meet your needs, but neither you nor your insurance agent will know for sure until the agent asks you a lot of questions and thoroughly understands your business. If the agent is unable or unwilling to tailor your coverage to your particular business, find someone else.
Be frank with your agent when discussing your business. Reveal all areas of unusual risk. If you fail to disclose all the facts, you may not get the coverage you need or, in some circumstances, the insurance company may later take the position that you misrepresented the nature of your operation and, for that reason, deny you coverage for exceptional risks.
Make sure you have a clear understanding of what your insurance policy covers and what’s excluded. Does the policy exclude damage from a leaking sprinkler system? From a boiler explosion? From an earthquake? If so, and these are risks you face, find out if they can be covered by paying a small extra premium.
Also ask how much the agent will help in processing claims if you do have a loss. Ideally, the insurance company should have a local or regional office that’s readily accessible to you. That’s normally a better arrangement and more personal than dealing with an insurance company that hires an independent claim service to investigate and deal with claims.
It’s a good idea to talk to several agents before making a final selection. Ask for written recommendations on comparable coverage and what the cost will be. There should be no charge for providing this information, because the agents will be eager to get your business.
In recent years, many insurance companies have become insolvent. If you wind up with a company that goes broke and you have a loss covered by a policy, you may receive only a paltry portion of the coverage that you paid for or none at all. The best way to minimize this risk is to work with a company that appears in good financial shape.
You can check out insurers in these standard reference works, which rate insurance companies for financial solvency:
• Best’s Insurance Reports (Property-Casualty Insurance Section)
• Moody’s Bank and Financial Manual (Volume 2)
• Duff & Phelps (Insurance Company Claims-Paying Ability Rating Guide), and
• Standard & Poor’s.
Each publication has strengths and weaknesses. In my opinion, the best overall sources on the list are Moody’s and Duff & Phelps. Some commentators think that Best’s is too lenient in its ratings. And Standard & Poor’s is sometimes incomplete because some companies prefer not to pay the huge fee it takes for a listing. Your insurance agent should be able to give you the latest ratings from these publications. You can also check the reference department at a public library.
Also consider the services offered by The Street.com Ratings (formerly Weiss, Inc.), which is reputed to be tougher (more conservative) in its ratings. It offers a variety of low-cost reports on the solvency of an insurance company. You can go to its website at www.thestreetratings.com.
Excerpted from Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo).