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The Wheat from the Chaff
What insurance your company really needs
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Business New Haven
10/23/1995
By: BNH
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The difference between lawyers and insurance brokers is that the latter are motivated by the jokes.
The truth is that as business costs and risks increase, the importance of good insurance choices grow.
To help readers discern the difference between good and poor choices, we first called Penn Ritter of Business Lenders Inc., a statewide SBA lender, who has a lot of small-business savvy. Ritter didn't offer to lend us money, proving he went into banking, because he never could have made it in insurance.
He did offer several points that bear repeating. First, a lender wants you have to life insurance. While he put it more delicately, the bottom line is it's harder to collect from dead clients.
Ritter also stressed the importance of the quality of your agent. “You need to trust your agent,” he said. “Look for one who's not afraid to give you referrals, [and] call those referrals. Use your own judgment, so that you can have a good, trusting relationship with the person selling you insurance.”
Steven Glick, president of Coordinated Financial Resources of Orange and the founder of the Chamber Insurance Trust, said that the common sense one would apply to other choices matters in insurance, too. “Look for a well-recognized name,” he noted. “Insurance is still based on the laws of large numbers, and the cost of medical care is still rising ten to 15 percent, with cost-shifting now going to Medicare patients.”
For cost control, Glick like others views managed-care as the only solution. “Managed-care companies are like purchasing agents,” he said. “They find the best values, they evaluate the best outcomes and create a network of doctors and providers to deliver the services.”
While about 50 percent of Connecticut businesses have indemnity insurance, Glick said that won't be the case much longer. “You can't make money selling indemnity [health] insurance any more,” he said. “Some companies have moved themselves into managed-care designs, for example CIGNA and Aetna.” Glick reminded employers that “With an indemnity plan, the decision [to spend] lies solely with the consumers, the employees. There is no one in-between who has acted as your purchasing agent to get the best deal.”
John Coghill, branch manager of Dunlap Insurance in New Haven, has a simple plan: “Look at your entire insurance package and ask to what extent are you willing to take some risks. Put these risks in the very low hazard areas. For example, you're a manufacturer with building and contents worth $5 million. Fire insurance is a good area to assume some risk, and you do that by using deductibles to save a lot of premium.
The second area where you look at deductibles,” Coghill continued, “is small claims which you may tend to pay yourself. Take the money you save in these areas, then you can buy higher coverage back in the liability area. By putting a deductible on a policy you have a finite loss. You're taking some risk, but you know how much the risk is. On products liability you don't know how big the claim can be - it can be millions. You fund the higher limits there by taking risk elsewhere. Be careful to take your deductible on a per-occurrence, and not a per-claim, basis.”
In spite of rising costs of workers compensation insurance, Coghill said not every party is committed to reducing costs. “The attitude of many insureds - agents and companies, too, is that workers comp is workers comp, and if you have a claim there is nothing you can do because the state sets the limits. That's not true: There is an awful lot you can do.”
For example, while rates are set by the state, there is room for mistakes and subjectivity, such as your company's experience modifier. An industry group, the NCCI, does the calculations based on a company's actual payroll to determine your loss picture. If you do better than average, rates will be lower (and vice-versa). Said Coghill: “A professional agent today will have claims-management specialists to argue the company on your behalf.”
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