Last month we had referrals into two “good sized” companies to discuss their insurance programs, and the similarities shared between those accounts makes for a good discussion on the importance of a Diagnostic Insurance Review or second opinion. (“Good sized” means both had 25 or more employees and over $10M in annual sales.)
The Diagnostic Insurance Review is step three of our Strategic Risk Process. Step one is The Discovery Conversation and Step two is our Threat Assessment Report. Sometimes, accounts like the two we’re discussing here, jump right into The Diagnostic Review and bypass steps one and two. Which is okay, I have no problem with a deal accelerating through the process!
The Diagnostic Insurance Review is a deep dive into a firm’s existing insurance policies where we uncover shortfalls, gaps, overlaps and incorrect coverage structures. Having performed hundreds of these reviews, I can tell you that even the most sophisticated buyers don’t get it 100% right all the time. For the average business owner there’s almost a 100% failure rate, and the failures are often “fatal” – meaning that the coverage is so insufficient that a substantial claim could have a devastating impact on the business’s sustainability. What is shocking, is that in most cases, correcting the errors, gaps, or problems does not create a tremendous price difference.
Two examples of how The Diagnostic Insurance Review works:
The first is a professional services firm that has experienced considerable growth over the last 5 years. They have five offices in the U.S. and an outdated insurance program. Due to the firm’s rapid growth and change of personnel, no one was tasked with watching over administrative tasks like insurance. During our review we discovered that 3 of the latest office openings had not been added to any of their policies including the workers compensation policy. Not endorsing new state locations to the workers comp policy would exclude any injured workers at those locations after 30 days of opening that office. This is obviously problematic, as is the lack of property coverage for those new offices. Most liability forms would not exclude a liability loss at those locations but some may.
We were able to re-write this account mid-term and save the insured about $20,000! It’s a little unusual to expand coverage and actually reduce premiums, but in this circumstance, it worked out really well for the client.
The second firm is a fabrication shop in Brooklyn with 30 employees. In this account, the existing liability policy was chock full of exclusions and limitations that basically gutted coverage for most types of claims this client could have. This probably stemmed from the prior broker not understanding the type of business the client was in, or not understanding the scope of the problematic endorsements in the policy. In addition to basically not having liability protection, there was also inadequate property and business interruption coverage in the policies as well.
When we discussed this with the client he was unaware of how poorly his coverage was structured and was shocked at how the exclusions and limitations in his policy could negatively affect him. This is not uncommon! Most business owners don’t read or understand their policies and don’t ask enough questions of their agent or broker.
I get it. No business owner wants to sit down a read a two-hundred-page policy containing terminology they aren’t familiar with and try and understand what’s covered and what’s not. That’s why having the right broker who brings expertise and advocacy to a client relationship is important.
The good news here is that we were able to correct these deficiencies and replace the account mid-term with a savings of just over $30,000 per year. Again, we don’t always find savings when we make corrections or improvements, but sometimes it just works out.
Here’s the bottom line.
Business owners don’t spend the time they should to make sure they have the right insurance protection in place. This is probably rooted in the fact that they don’t understand insurance. When a business owner gets contacted by an insurance agent promising to save them money they will gladly give copies of their existing policies to that agent; who in turn usually just replicates the already insufficient policies at a lower cost.
It’s a vicious cycle of complacency that plagues the insurance industry. Unfortunately, the business owner thinks they can rely on the new agent to do the right thing protection wise and lower their premiums. Instead, the “burn and churn” mentality prevails, and client is left with improper protection which would be devastating at the time of a claim.
To respond to this pervasive problem, we created The Strategic Risk Process to engage new clients and maintain existing client relationships. It is a systematic method of delivering thorough and comprehensive expertise and knowledge to the risk decision making process for clients in the middle market.
Does it result in premium savings? Not always. As I mentioned, these two examples are unique, but our goal in addition to getting the protection right is to show a client how to reduce costs over the long term. The larger the client and insurance spend, the more important this becomes. Simply shopping around for the best quote on a renewal lacks strategy and often ends in missed opportunities.
Do you work with clients that have experienced rapid growth or may not have the ideal team in place to manage all the moving parts of their business? Want to add value to a client relationship to assure their success?
Would a recommendation to conduct a no pressure/no obligation Diagnostic Insurance Review make sense to help your clients improve their insurance buying decisions and give both of you peace of mind?
For more information on how we can help your clients make better decisions around risk, let’s have a conversation.