Beginning Contracts with Risk Assessments
Do you know and understand your business and its operations? Of course you do. Does your insurance company know and understand your business and its operations? That depends on you and your insurance agent. A powerful tool to help you educate the insurance marketplace is a risk assessment. A risk assessment is a series of questions that pertain to a variety of areas of risk in your business. Businesses typically only go through a risk assessment when they start the business or when they change insurance carriers. However, some businesses never go through a risk assessment which can lead to exposure to unidentified risks and potential harm to the business. The risk assessment helps the insurance agent and the carrier to get a better understanding of the operations you are performing, and also gives them an opportunity to make suggestions or requirements to help the business operate in a safer manner. A risk assessment should be performed at least once every three years or more if operations have changed. A risk assessment can take anywhere from one to four hours depending on how in depth you and your agent want to get.
You and your agent have gone through the assessment, now what? A risk assessment will give you crucial information about risks that impact your business, but as G.I. Joe says, “knowing is half the battle”. The other half is putting a plan in place to address those risks and executing that plan throughout the year. The plan and the execution will also HAVE AN IMPACT ON PREMIUM. This plan can be shared with the insurance marketplace to show that you are being proactive in addressing risks in your organization. Below are some examples of the many areas you should be reviewing with your insurance agent and examples of how they can impact your Snow and Ice Management company.
Insurance Certificate Management - If you sub-contract any of your work you know that you need to get Certificates of Insurance. But are you ensuring that the businesses performing snow removal operations do not have exclusions on their policies? Are you sure that the limits of their insurance match yours? Some insurance policies will not provide coverage if the sub-contractors limits are less than your own. It is also important to understand that the certificate only guarantees that the company has insurance at the time it gets processed. The policy could cancel at any time for a variety of reasons leaving the contractor responsible for any claims. One way to help prevent this is to require that all of your subs list you as an additional insured so that you are notified of any cancellations. You should also be requesting all endorsements and exclusions to ensure that certain operations such as performing work at condominiums or gas stations will be covered in the event of a loss.
Alternative markets - If you have a large successful business you may want to start thinking about alternative risk financing. If your snow and ice management company is paying around $1 million in insurance premiums or more it may be time to look at alternative methods to finance your risk. One of the methods to look at is a high deductible policy. This method will allow you to control claims up to $25,000, $50,000 or more and only insure against the larger claims. Another method is a captive insurance product. A captive insurance product is a self-insurance product where the insured or a group of insureds basically create their own insurance company. Before any decisions can be made on alternative risk financing it is important to complete an actuarial analysis to see if it would be beneficial.
Contractual risk - Typically no two contracts are the same. The amount of liability you take on can vary greatly from one contract to the next. This is why it is very important to review new contracts you are entering into with your insurance agent. The two areas where your agent can help are the indemnification section and the scope of work section. Understanding these sections before you sign is vital. It is important that you are not taking on too much of the liability and that the scope of work is clearly defined. You and your agent should also be reviewing the contracts you have written for your clients as well as your sub-contractor agreement. Disclaimer: Insurance agents are not lawyers. All contracts should ultimately be reviewed by a trusted lawyer who has knowledge of your operations and contractual obligations associated with snow and ice management.
Human resources - How do you recruit new employees? Do you have mandatory pre employment physicals? Is the person you are hiring an employee or an independent contractor? Do you know the difference between the two? These are all questions that can have a significant impact on your Workers’ Compensation premium. Finding good employees is always hard, especially seasonal ones. Background checks and physicals are important to ensure you are not hiring your next Workers’ Compensation claim. It is also very important to know and understand your state’s laws on the definition of an “independent contractor”. Failure to classify your workers properly can lead to a large and unexpected increase to payroll at the time of an audit.
Driver Safety - What are your driver hiring guidelines? Are you checking the driving records of your employees on a yearly basis to ensure that they are safe drivers? Do you have a documented driver safety policy? All of these things will decrease the likelihood of one of your drivers getting into an accident while on the job. It will also have an impact on your premium.
A thorough risk assessment will include many more areas of potential risk to explore. The ones mentioned in this article are the areas that most impact the snow and ice management industry. If you regularly assess these areas of your business and take the time with your insurance agent to put a plan in place to address identified risks you will be rewarded. Not only will you have a safer and more productive work environment but you will also become more attractive to the insurance marketplace and will ultimately see an impact on your premium.
For more information or to schedule a risk assessment for your business, give me a call in our FBinsure North Attleboro office.