Items to Consider When Switching Insurance Carriers

8/3/2019 Items to Consider When Switching Insurance Carriers

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InsuranceIssues

Items to Consider WhenSwitching Insurance CarriersNathan Brainard

Insurance agents are often asked: what are

the pros and cons o switching an insurance carrier?

It is important to note that not all insurance carriers,

and polices or that matter, are equal in what they

oer their policyholders.

Just like the variety o options you have when

selecting what type o power unit you are purchasing

or the tires or your eet, you have options in insurance

providers. Some o the most important items to keepin mind when considering a switch rom one carrier

to another is their experience with your industry and

the amount o premium they currently handle. A

company who is just getting into the industry might

incur a substantial loss and be orced to exit just as

quickly as they entered, or they might not provide

all o the necessary orms you need to be protected.

Beyond their existing experience, one o the most

important actors is the fnancial strength or rating o

the potential carrier.

Verifying the FinancialStability of a Carrier

There are third-party companies such as A.M. Best

who provide inormation on insurance carriers, most

notably fnancial rankings (see Chart 1, page 42).

Consider doing business with insurance companies

who carry a rating o A-VII or better. This is not

only or your protection, but or your agent as well.

While there is technically nothing wrong with a

carrier who possesses a rating less than A- VII, they

simply dont oer the peace o mind other companies

with a rating o A- VII or higher oer. Furthermore,

insurance agents purchase Errors & Omissions (E&O)

insurance should a mistake be made and a lawsuit be

fled. Many E&O carriers will not oer coverage to anagent/agency or insolvency i the carrier has less than

a specifed rating. I you are dealing with a smaller

agency that is carrying minimal E&O coverage and a

claim is not covered, they could go out o business and

leave you holding the bag or the uncovered claim.

Anyone can gain access to the A.M. Best database by

visiting www.ambest.com, registering and entering

in the name o the insurance carrier in question. They

will not inundate you with spam, and it can prove to

be a valuable resource.

The fnancial ranking o an insurance carrier is

based on the current review o their fnancial position,

as well as their long-term fnancial outlook, etc. This

is especially important since a majority o contracts

with both municipalities and private companies

contain a stipulation regarding not only the limits o

insurance provided, but also that coverage is in place

with a carrier who possesses a specifc fnancial rating.

Insurance carriers/companies who carry a ratingless than A (in any ashion) might get more

competitive with their premiums, but in the event

o a catastrophic event, such as Hurricane Katrina, in

which a lesser rated carrier sustains a massive loss, the

possibility o their going out o business and leaving

their policy holders without coverage are greater than

those with an A rating. In some states, there is a

possibility o the carrier being backed by the state in

such an event, however, this will depend on several

actors including, but not limited to: the carriers

fnancial rating, whether they are Admitted vs. Non-

Admitted, i your state has such a policy o stepping

in and picking up coverage, the conditions o which

Bf , make sure theagents and carriershave suBstantialindustry knowledge,experience, carrierrelationships andservice capaBilities.

40 WasteAdvantage Magazine December 2010

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the carrier went out o business and the amount o the claim in question. Some

states also dierentiate between coverage lines such as Workers Comp, Auto

or GL.

An Admitted CarrierAn admitted carrier tends to be one with a household name; youll see

commercials or them on television. An Admitted carrier is one whom the

state has approved or business and is willing to back you up in the event o

such a loss. These losses tend to be capped at a specifc amount per claim, and

the guarantee is or policyholders rom the time the carrier goes out o business

to the expiration date o the policy. Again, it is important to fnd out the laws

in your specifc state to determine how this is handled and to what amount oa claim.

A Non-Admitted CarrierA Non-Admitted carrier is one who is not backed by the state and might

not have a recognizable name. They are typically known as Excess & Surplus, or

E&S carriers. There are some industries, such as Waste Hauling and Recycling

where a majority o the carriers who are willing to entertain the policy terms

are Non-Admitted. There is nothing wrong with a fnancially strong, Non-

Admitted carrier as long as you understand you are placing a bit more skin in

the game. In some cases, you may not have a choice. For this industry you will

typically have to consider E&S carriers unless your premiums are quite large,

usually in excess o $1,000,000 annually. There are exceptions, but as a general

rule this will typically hold true.

Endorsements and ExclusionsThis brings us to the next item to consider, Endorsements and Exclusions.

Every carrier out there will oer dierent terms, so simply reviewing the

bottom line premium is ill advised. I you plan on purchasing your insurance

based on the lowest premium you could potentially be playing Russian roulette

with your company. Lets use the ollowing example:

You own a residential and commercial hauling company where loads are taken straight

to athird-party transer station or landfll, and over the past fve years have had a loss

ratio (premium paid in versus the premium paid out in claims) o less than 20 percent.

Your goal is to secure Auto, General Liability (GL) and Umbrella or excess coverage.

You assigned your agent to bring you three proposals or review and consideration.

It is almost a guarantee that you will have three options which are vastly dierent rom one another, not only in the terms o coverage, but in the premiums. I you are

planning on buying the cheapest option, you could be making a atal mistake. While

premiums should play a actor in your decision, it should not be the driving actor.

Option #1 has a total premium of $110,000 for all three lines of coverage. It is

an A-IX rated carrier and oers a pollution endorsement in the event you lose a load

as well as all o the typically requested orms: Blanket Additional Insured, Waiver o

Subrogation, Primary Non-contributory wording, and the Deense costs are outside the

limit o coverage. Additionally, the umbrella will kick in over the pollution coverage

should the need arise.

Option #2 has a premium of $100,000 for all three lines of coverage and is also an

A-IX rated carrier. They are able to oer all o the terms o option one, but they are not

able to oer Additional Insured status on a blanket basis. There will be an additional

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charge of $250 each time blanket wording is needed. They are also not able to include

the pollution coverage in their Umbrella orm.

Option #3 has a total premium of $60,000 for all three lines of coverage. Thereis an absolute pollution exclusion as well as an accidental upset and overturn exclusion.

They do not oer any orms on a blanket basis and they carry a B rating. The Deense

costs are inside the limit o coverage and their Umbrella does not have the ability to sit

over the pollution coverage.

You now have to make a decision on which carrier to move orward with. Right o

the bat Option #3 should be eliminated. Their nancial rating is less than desirable and

they do not oer any true coverage rom a pollution standpoint, or in terms o required

endorsement wording. I you did spend the money on this policy you, in essence, have

just begun your game o Russian roulette. Should a claim be submitted there is a strong

possibility it is not covered by this carrier and you, as the business owner, will now have

to pay or and potentially deend this claim out o your own pocket.

Options #1 and #2 are more viable and warrant some discussion with the

agent. The real actor here is how much risk are you willing to take on? I you

are more aggressive and dont mind paying each time you need a certifcate with

additional insured wording, and the act that a pollution related claim does not

have the added protection o the Umbrella policy, this might be the option or

you. It is important to note pollution claims are seldom a ew thousand dollars.

They tend to start in the tens o thousands and go up rom there.

I you are more cautious and willing to pay a bit more or that extra sense osecurity, the frst option is or you. You will also not be saddled with an extra

expense every time a certifcate with Additional Insured wording is requested.

Keep in mind, it is your company and it is up to you to make the best decision

on how to protect what you have built. You should use your agent as a sounding

board and ask their advice. Ater all, you rely on them or their expertise in this

matter the same way you rely on your CPA or your taxes.

Know What to Look ForAs a company engaged in waste (residential, commercial, medical, etc.) or

in recycling, the ollowing are a ew key coverage endorsements to be on the

lookout or when contemplating a move rom one carrier to another. First, ask

i this carrier specializes in your industry. You dont want to make a switch to

a carrier who has just gotten into the market due to a poor economy, and at the

frst sign o economic improvement is going to exit and leave you in a position

o having to locate a new carrier next year.

CA 99 48 Broadened Transportation Pollution LiabilityThis provides coverage in the event you have a truck overturn or lose a load

and you are responsible or the remediation or cleanup costs. The MCS 90 is aless valuable orm and while it will meet most county and state requirements,

it will also require you, as the company, to reimburse the carrier or any

expenses incurred to the cleanup. The CA 99 48 has a deductible, which once

paid requires no urther action. This endorsement does not cover Bodily Injury

or Property Damage. The broadest orm, which includes Bodily Injury and

Property Damage, is known as TPL or Transportation Pollution Liability.

Absolute Pollution ExclusionAlmost all GL and Auto policies have this listed in the declarations page.

This means they will not provide any coverage or a pollution related item, thus

making the above endorsement even more valuable.

Accidental Upset and OverturnThis provides coverage should you have a truck involved in an accident and

lubricants such as hydraulic uid, uel,

oil, etc. leak out. This is all it will cover,

and it is not pollution coverage.

Blanket Additional InsuredThere are several versions o this

endorsement. Some limit coverage to

Landlords and Lien Holders while others

extend out to contract holders. I your

contracts do not require you to provide

this endorsement, you have more options

than those companies who do need a

specifc type o coverage.

Blanket Waiver of SubrogationThis provides the certifcate holder

amnesty rom having their insurance

reimburse your carrier or a claim

involving both parties. I the orm is not

on a blanket basis, ask how much it is

going to cost you every time you need a

certifcate with this endorsement. Youmight fnd it is more advantageous to spend

an extra $750 (or whatever the charge is) at

the beginning o the policy term as opposed

to paying $250 every time you need it. Ater

the third certifcate you are wasting money

that could have been easily saved i you had taken the time to ask this question.

Defense CostsThis is extremely important. Are these inside or outside o the limit o

coverage? The optimal answer here is outside the limit. I you have a claim and

your policy has $1,000,000 per occurrence on GL or combined single Limit

(CSL) on auto, and your deense costs are within the limit, your total amount

o coverage is reduced by the cost o your legal deense. Unortunately, good

attorneys are not typically inexpensive and i the deense costs are inside the

limit o coverage you have available, it could be quickly eroded.

As or the Umbrella or Excess coverage, most carriers will exclude pollution

coverage here as well. There are some carriers who do oer coverage in their

Umbrella or pollution, but it needs to be requested. In some instances it could

be necessary to select a dierent Umbrella carrier rom the Auto and GL provider.

Shopping Your AgentAnother item that seems to revolve around switching carriers is shopping

your insurance agent. I you shop not only your insurance carrier, but also

your agent every year be wary. Insurance carriers track their submissions and

are able to go back to their database and see how many times your particular

account has been submitted. I they have seen it every year or the past fve

years, but have never written your coverage they are going to be less likely to

be aggressive, or in some cases even oer a proposal. They would rather have

their underwriters ocus and work on accounts they stand a better chance o

doing business with. Additionally, when they review your loss runs, which are

required with the submission inormation, and they see you have been with a

dierent carrier each o the last fve years, they could take a similar approach o

not oering terms or not being aggressive.

Best Ratings Scale

A++, A+: Superior

A, A-: Excellent

B++, B+: Very Good

Vulnerable Ratings

B,B-: Fair

C++, C+: Marginal

C, C-: Weak

D: Poor

E: Under Regulatory Supervision

F: In Liquidation

S: Rating Suspended

Financial Size Categoris*

Class I: 0 to 1

Class V: 10 to 25

Class X: 500 to 750

Class XV: 2000+

42 WasteAdvantage Magazine December 2010

Im ci w sii I ci

Chart 1:The fnancial rankingo an insurance carrier is basedon the current review o their

fnancial position, as wellas their long-term fnancialoutlook, etc.

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While they are providing a service, and you as the consumer have every right

to shop around, they want to fnd companies they can establish a relationship

with. It might sound absurd to you, but would you want to hire a driver whohad worked at fve dierent hauling companies in fve years? The driver is going

to require training, benefts and other expenses above and beyond payroll. Why

would you waste money on someone who is just going to leave as soon as they

think they can make 25 cents more an hour, when you could invest in a driver

who is committed to being with you or a long period o time?

Independent insurance agents should be viewed the same

way you see your CPA or Corporate Council. While they

do sell something, good agents are experts in their feld. I

you are dead set on shopping your agent, consider broker

selection. This is essentially a process where you interviewseveral dierent agents and determine which agent and

agency bring the most beneft to you and your company.

Keep in mind, the selling and issuance o the policy is the

easy part. Industry knowledge, access to viable carriers/

markets and service/claims handling are going to really

separate the various candidates. Important questions to ask

the prospective agents are:

How many accounts in this industry do you currently

represent? Asking or reerrals is not uncommon. How many carriers do you currently represent who are

interested in this class o business?

What volume of premium do you and your agency

handle in my industry? This is important as agents who

have more premiums in a specifc class o business tend

to have better relationships with their underwriters and

can get more avors when needed.

What services does your agency provide once a policy

is written?

Do you offer in-house risk management and claims

handing via your employees, or do you rely on the

carrier to provide these services? I they oer the

services via their own employees, ask or copies o the

biographies or resumes o these individuals. You dont

want someone with no real world experience to be your

only resource should they be needed.

Do you provide claims tracking software or a Web site

I can access rom my ofce should the need arise? I so,

is there a charge or this service?These are just a ew examples o questions you might

consider asking. Keep in mind, these are the people who are

going to represent you and your company. Their experience

in your feld could be crucial to your success or the reason or

your demise. Sure, company owners, ofcers and directors

would rather oss their teeth with a chainsaw than deal with

the insurance renewal, but it is a crucial part o your business

and how you are protecting your assets.

There is no harm in exploring the marketplace, especially

in the current economic climate. The manner and requencyin which you do this however is going to be crucial to your

company, not only this year, but also as you move orward

and grow. This is a complex industry that requires agents and

carriers with substantial industry knowledge, experience,

carrier relationships and service capabilities. These are all

items which should be seriously considered prior to and beore making any

changes to your insurance carrier or agent. | WANathan Brainard

is Vice President o the Environmental Division at InsuranceOfce of America (IOA) (Longwood, FL). Nathan has been with IOA for six years and

specializes in Environmental Insurance with an emphasis on insurance or the Waste,

Recycling, Remediation and Demolition industries. He can be reached at (407) 998-

5287 or via e-mail at [email protected].

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2010 Waste Advantage Magazine, All Rights Reserved.Reprinted rom Waste Advantage Magazine. Contents cannot be reprinted without permission rom the publisher.

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Items to Consider When Switching Insurance Carriers