Bad Practices That Raise Your Business Insurance Costs
Top Ten Ways to Increase Your Cost of Business Insurance
Actions you take or don't take can increase your cost of business insurance. They can also generate expenses that aren't covered by your insurance policies. If you don't want to pay higher insurance premiums or out-of-pocket costs, you should avoid doing the ten things outlined below.
Not Providing Regular Training
No business is cast in stone. Virtually every industry undergoes technological improvements. Advances in your industry may necessitate changes in the equipment or processes you use. Social, political or legal changes can create new risks for your company. Both you and your employees need to keep abreast of these changes through regular training. Improperly trained workers can cause accidents that result in workplace injuries or litigation against your firm. Businesses with a poor loss history pay more for insurance than those with good loss experience.
Not Maintaining a Safe Workplace
All employers must comply with OSHA's general duty clause, which requires employers to maintain a safe workplace. Violators are subject to sanctions, including fines.
Employers are also obligated by common law to take reasonable care to keep employees safe on the job. When employers ignore workplace safety, on-the-job injuries will likely occur. Many workplace hazards, such as slips, trips, and falls, are relatively easy to control. Employers that have a history of frequent workplace injuries will pay more for workers compensation insurance.
Failing to Keep Adequate Records
Many auto, property, and workers compensation insurers offer discounts to employers that maintain an effective risk management program. To obtain these discounts, you must prove that you have performed the required activities such as worker training and equipment maintenance. If you have failed to keep adequate records, your insurer may deny the discount. You may also have difficulty proving to OSHA or a court that your workers were properly trained or that other risk management tasks were performed.
Failing to Purchase Insurance
Some business owners believe that foregoing insurance is a good way to save money. Why should you buy general liability insurance when no claims or suits have been filed against your firm in the past? In reality, failing to buy liability insurance is equivalent to gambling on the future of your company. Moreover, gaps in coverage can make you unattractive to insurers. Insurance companies prefer to insure businesses that have a solid history of continuous coverage. When you eventually do buy insurance, you may pay more for your policy than a similar business that has been properly insured.
Purchasing Inadequate Coverage
While buying some insurance may be preferable to buying none at all, skimping on insurance is still a bad idea. If a loss occurs, the amount you pay out of pocket may be much more than the premium you saved by under-insuring your business. For example, suppose you decide to save money on auto liability insurance by purchasing only the statutory limit, which is $25,000/$50,000/$25,000 in your state. A serious auto accident generates $100,000 in damages against your firm for bodily injury to one individual.
Your firm must pay $75,000, three-quarters of the loss. Skimping on auto liability insurance has cost you $75,000.
It is also important to adequately insure your business property. If you fail to do so you may be subject to a coinsurance penalty under your commercial property policy. The penalty for underinsurance may well exceed the amount of money you saved by forgoing proper coverage.
Ignoring Specific Risks
Every business faces risks as a result of its geographic location. Such risks may include earthquakes, landslides, sinkholes, windstorms and other natural phenomena. Certain risks, like civil unrest, vandalism, and auto theft, are more common in some locations than others. When the risk of loss is greater, the premium to insure your business against that risk will be higher. Earthquake insurance will cost more if your business is located in California than it if it is located in Florida. Still, it's important to recognize the risks that exist and to protect your business against them.
It's naive to assume that a loss "won't happen to me."
Self-Insuring Without Adequate Resources
A business owner that wants to reduce premiums may view self-insurance as an easy solution. This is a mistake. No business should self-insure any risk unless it has adequate financial resources to pay losses resulting from those risks. Businesses that wish to self-insure their workers compensation obligations must comply with state laws. Most states specify a minimum amount of funds an employer must maintain as a self-insured retention. This amount may be insufficient to cover a large loss. If you later decide to switch back to a fully-insured program, you may pay more for insurance than you would have otherwise.
Failing To Comply With Employment Laws
All businesses must comply with federal, state, and local employment laws. Any attempt to skirt these laws can be a costly mistake. For instance, your company may be subject to fines if it misclassifies some employees as independent contractors in order to minimize workers' compensation premiums. Likewise, it may be subject to fines or lawsuits if it acts in a discriminatory manner or hires workers illegally.
Hiring Uninsured Contractors
If your company hires independent contractors or subcontractors, it's important to ensure those businesses have adequate liability insurance. If an accident occurs in which a third party is injured, that party may seek compensation from you and the contractor. Moreover, contractors (like all employers) are obligated by law to purchase workers compensation insurance. If an employee of the contractor is injured on the job and the contractor has failed to purchase insurance, your company may be required to provide workers compensation benefits to the worker.
Choosing the Wrong Insurer
One pitfall of buying insurance is choosing the wrong insurer. When shopping for a policy, look for an insurer that caters to your type of business. If you operate a restaurant, look for an insurer that offers policies tailored to restaurants. Likewise, a retail store owner should seek out an insurer that offers coverages designed for retailers. Of course, when choosing an insurer, you should select a company that is financially stable, licensed in your state, and provides good service.
Article edited by Marianne Bonner