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"It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money -- that is all. When you pay too little, you sometimes lose everything, because the thing you bought is incapable of what it was bought to do. The common law of business balance prohibits paying a little and getting alot -- it can't be done. If you deal with the lowest bidder, it is well to add a little for the risk you run. And, if you do that, you will have enough to pay for something better."
John Ruskin 1819 - 1900
For most business owners, insurance is a real burden. We all need it and we pay a lot for it, but we do not really understand it. We just hope for the best that insurance will be there when a loss occurs. Unfortunately, the fact that we do not take the time to evaluate our insurance coverage can lead to disasterous consequences. Everybody is busy and nobody can really afford to waste time, but the proper insurance is crucial to the continued integrity of our businesses.
This page is a guide to the review/bid experience. We offer this guide in the interest in order to that you (the Buyer), the insurance producers (agent or broker) and the underwriters at the insurance companies do not waste time giving you the best possible price/conditions for your insurance.
Insurance Buyer's Decision - To Change or Not to Change
Evaluation / Inspection by the Insurance Company(ies)
What Northeastern Underwriters Does.
Unless you are just starting a business for the first time, you already have insurance coverage. If you feel that the coverage is adequate, you are happy with your insurance company and you are confident that your agent or broker is doing a fine job, do not waste your time reading this.
If you are still reading this, it may be that there is some dissatisfaction with your insurance company. Perhaps a recent conversation with your insurance agent or broker lead you to suspect that he or she may lack the knowledge and/or experience to make sure you have the right coverage. After all, marine insurance is highly specialized with a long learning curve. Your agent/broker is probably a friendly, decent sort of person with whom you have done business for some time. Could you bring yourself to switch to another agent?
1. If your answer is, "no, I couldn't or wouldn't switch", or something of the sort, tell your agent that you want a total review of all your coverages and that you want to review quotes from a number of insurance companies. You will want a formal proposal showing all the results.
If your answer is "yes, I would change agents if I was offered better coverge and/or better pricing ", go to #2 below.
2. First you must have the time hopefully, at least 45-60 days to do this. Once you have decided you are willing change agents, if the conditions were right, you must establish clear, reasonable criteria for change. What will it take?
3. A "level playing field" is fair to all concerned -- to your current agent, prospective new agents and, above all, it is fair to you. Everybody (including you) will be working hard to get you the best value for your insurance dollar.
4. Follow through do what you said you were going to do. Agents and insurance underwriters who make the effort to do a good job for you must have a reasonable expectation of success. The consequences of just using people can be severe. The marine insurance market is small and word does get around. The better, more experienced, agents/brokers will not come back again; why should they?
It is important not to lose sight of the fact that, if there were no losses, there would be no need for insurance. So, in spite of themselves, even in a "hard" market, insurance companies still have to write policies to survive.
Remember, the insurance buyer runs this show. It will require diligence and persistence. Providing insurance agents/brokers and their insurance company underwriters with the most complete information possible is the best method for getting the most favorable rates. Current conditions are deceptive. We are now experiencing a "soft" market and essential data is often overlooked by insurance companies in their rush to write business. This will not last. You know that, once the market turns "hard", it becomes a sellers' market and insurors cancel unprofitable policies or raise premiums even on profitable business to make up for their past losses.
Most insurance agents/brokers appear to be cordial, engaging people -- (individuals not so inclined take jobs for which these qualities are not essential -- prison guards comes to mind). Apart from the agent/broker's natural charm, your contact with the agents/brokers quoting will give you some idea of their qualification to handle your business. Ask questions! You have to be comfortable with your agent or broker's knowledge of your business and how insurance fulfills your needs.
If you can provide a good underwriter with information necessary, you will give the underwriter the tools to justify the most favorable pricing over the long term.
A Few Words of Caution!
Marine insurance policies (for the most part) are subject to US Admiralty Court jurisdiction. Policyholders have a duty of utmost good faith ("uberrimae fidei"). Participants in an insurance contract must disclose every material circumstance. Unlike common law, wherein the courts have often found that there is no duty to volunteer information, the omission of pertinent information, even by mistake or lack of due diligence, could be regarded as misrepresentation. Such acts can void an insurance policy.
A second critical duty of a commercial vessel owner is the requirement to maintain the vessel in a "seaworthy" condition. This term has a very unique legal definition as respects insurance. Unlike many recreational insurance policies, commercial hull policies require that any insured vessel be seaworthy at the time of policy attachment and to continue to maintain the insured vessel in a seaworthy condition. Although there may be no specific reference to the condition of the vessel at the time of insurance attachment, there is an implied warranty of seaworthiness. This is a legal term no underwriter would insure an unseaworthy vessel, so a request for coverage carries the legal implication that the boat to be insured is seaworthy. If such is not the case, the policy is void. The owner has the legal obligation to provide a vessel suitable for it's intended use.
A good underwriter will want to know:
1. Exposure (payrolls, sales, values etc).
2. Your past experience.
3. What you do to prevent losses.
4. If a loss occurs, what do you do to keep it under control.
5. Condition and value of equipment (marine surveyor reports).
6. "Nice to Know" information (below).
Keep the following information in a file, so that you can (easily) copy the information, if requested by an insurance broker. Your broker must have an extensive knowledge of your business. If she/he does not, how can the broker establish the proper coverages? To some extent, you will find out a little more about that broker's knowledge by what he or she wants from you and why it is necessary.
The "Broker of Record" Thing:
If you are going to review bids from several agents/brokers, you will want to get from each broker the names and addresses of several insurance companies on whose behalf they will be quoting. If a broker
asks you to write a "Broker of Record letter for Quoting", it is a fair request, but you should keep a record and provide only one such letter per insurance company/group. Providing more than one letter to a given insurance group is asking for trouble; the agents will be fighting amongst themselves and the insurance company will rapidly lose interest.
IMPORTANT!! - You should never sign a "To Whom It May Concern" letter, because it will likely start a massive dog fight among those competing for your business. If fact, if you are asked to do so in a competitive situation, you probably should break off negotiations with any broker that wants a "blanket" letter that could be sent to any company. It is often used as a way of limiting who will be quoting on your insurance.
1. Exposures.
Review values of buildings/contents, dock values and business interruption. Site plans,
recent vessel surveys, lists of vessels and vehicles (including drivers' names, dates of birth, and license
numbers).
Some of your premium may depend upon your payroll and/or receipts, so an accurate estimate of payrolls and/or receipts for the forthcoming year is essential. The list must be broken down by code/classification and by location.
If possible, take the time to write up a description of your business and what your employees do job functions, types of machinery, departments, etc.
2. Insurance Coverage
An agent/broker must know what limits and coverage to quote and you must have the
assurance that, using the same exposures, you are getting an "apples for apples"
quote. Schedules of insurance policies, copies of existing coverage and insurance
specifications for bidding are common. A re-statement of the criteria and exposures you provided should be part of his/her quote.
3. Your Past Experience
Detailed Losses.
For each policy, obtain a recent detailed list of all losses for the past
five years (three years minimum) plus losses that have occurred during the current
year. Agent Link.
Description of Larger Losses.
Many companies will want to know the details of "what
happened" on larger losses. The will also want to know the present status of each of
these larger losses and what actions (in writing) you have taken to prevent this from
happening again.
Experience Modification Worksheets.
This statistical data is calculated by the National
Council on Compensation Insurance (NCCI) and, for some states, by the state
compensation rating board. In Connecticut, for example, if your exposures developed a
premium of $11,000 the last year or in the last two years, or if your exposures
developed an average premium of $5,500 over the past three years, you are eligible for
experience rating. NCCI is supposed to mail a copy to all insureds who qualify. If you
qualify and you have not received a copy of your experience rating, it can be obtained
free from NCCI. Copies of current and past
experience modifications should be kept on file.
Copies of Past Audits.
At the end of each policy year, your payrolls and sales are
audited. The last three audits should be kept in the file. Although not normally
requested, audits can be used to cross-check for errors and for establishing business
trends.
Icing on the Cake: The following is helpful, but not necessary.
OSHA Log should be available.
Required Plans: "Lock Out /Tag Out", Closed Entry, Hazardous Materials, etc
Loss Prevention. - What Do You Do To Prevent Losses?
Do you have a written safety plan? A copy of the plan and a record of safety committee
meetings should be available.
What safety recommendations were made by the current an prior insurance companies.
What did you do about the? Records should be on hand.
If a large loss occurred, what actions were taken to prevent this from happening to
someone else?
Claims Control.
What do you do when a claim occurs? How do you respond when an somebody is
injured? Written procedure names/numbers of emergency response, ambulance,
hospital emergency room, etc. should be available.
Claims reporting procedures, so everybody knows what to do names, telephone
numbers, fax numbers, insurance company and policy numbers should also be in
writing and available.
If you have a formal workers compensation "Return to Work" program or a state
approved Managed Care Plan, they should be on file.
It used to be that insurance companies sent a representative out to inspect, prior to quoting. The inspector was the eyes and ears of the company. Based upon this evaluation, the insurance underwriter decided whether to quote or not and, if quoting, what pricing would be available. Sadly, fiscal constraints have moved this evaluation to after insurance is effected. Recommendations are then made based on the inspection and, if not implemented, cancellation follows.
It is important to have enough lead time for companies to inspect and you should request that they do so. You will have a greater degree of predictability, if, after inspecting, a company's quote is unqualified.
Make available a time and date, two to three weeks in the future, when insurance company representatives can inspect if they wish. Otherwise, you can count on becoming a tour guide, listening to the same questions over and over.
By now, you should have formed some idea about the agents/brokers quoting on your insurance. They are all personable, but some have exhibited more knowledge about how insurance applies to your operations than others. Nobody expects you to fully understand insurance; you should ask questions about anything you do not understand when you get the quotes. If you do not understand the answer, ask again. do not be intimidated by "insurance talk". Criteria for evaluating the quotes should include:
1. COVERAGE: Detailed descriptions of the coverages offered. Ask questions. What are the typical exclusions and limitations? Do all the quotes have the same exclusions? All insurance is not the same; some policies really are better than others.
2. PRICING: What policies can be audited at the end of the year? Are there any "minimum" premiums?
3. SERVICE: What services are being offered? - by the agent, by the insurance company.
lastly, and most crucially important,
4. KNOWLEDGE/EXPERIENCE: This is the most difficult and most important criteria. The exposures to loss in the maritime industry are many and varied. The agent you choose must know your business, the marine insurance business and the applicable statutes that govern them. The agent you choose will be your close advisor.
KEY POINT- Keep in mind that, when you get 'free" advice, it is usually worth what you pay for it. Often agents and brokers quoting on your insurance will offer more than you requested. They offer free advice on how to correct errors or lack of coverage in the interests of providing you with a "better" insurance program. This "free" advice can often be a baseless accusation. It is meant to show that the proposer is really smart and your present agent is inadequate.
Ask yourself, "Why would a knowldgeable, experienced agent give away the knowledge he or she has acquired over years of experience and study -- to somebody who is not his customer?" Most experienced agents know that anybody with a license can access any insurance company -- either directly or indirectly. The most valuable product a good marine agent has is his knowledge and experience. The buyer gets the benefit of that knowledge when he buys insurance.
Every quote, whether by insurance companies providing quotes to your present broker or to several competing brokers should have the same exposure (payrolls / receipts / sales), the same limits and the same coverages in other words "apples for apples". Do not accept departures from your insurance specifications.
Now for the really hard part....sticking to the original criteria you set up at the beginning of this process. If you accepted bids from several agents, you may have to part company with your current agent. This is very hard to do (unless you never really liked your agent anyway), but a new person has earned the right to be your agent/broker. Your current agent/broker can always come back in a couple of years -- sooner even, if you are unhappy with your decision to switch.
Make sure the policies agree the quote. If they appear to be OK, set up a meeting with your agent to discuss coverage recommendations. Your insurance coverage prior to the bid process was probably static -- each year a copy of the year before. Sure, you added a new vessel to the fleet or maybe changed vehicles, but, when was the last time you reviewed all your coverages and discussed changes? Do not waste the time you have invested thus far-- review everything. Some of these changes could result in a premium increase or decrease from the quoted price, so get the cost/savings for the changes in writing.
Set up the administration of your insurance program (inspections, billing issues, claims issues, certificates of insurance, filings, etc). Who does what? The list should include telephone numbers/fax/email to the agency and the various insurance companies and their forms for claims. Your job will be much easier, if you have all contacts on file.
(Shameless Advertising Section)
Northeastern Underwriters is an insurance agency and brokerage. We have been providing insurance programs for the maritime industry for quite some time. We work hard, we are knowledgeable (about your business and marine insurance) and we are proud of these efforts. We do not write all kinds of insurance, but we are very good at marine insurance -- that is what we do.
Most important -- Call Northeastern Underwriters!