Bug Your Broker
Vigilance lowers insurance costs
Insurance costs are a nuisance for every small-business owner. Last summer they made Keith Alper reach the boiling point. His company, which had just under 60 employees, was spending $75,000 on policies. "We'd accumulated a lot of policies over the years, and at times we just paid our bills and didn't look at what we were paying for," says Alper, whose Creative Producers Group (CPG), based in St. Louis, produces videos and events for Fortune 500 clients.
All that overspending could have been avoided if CPG had simply asked its broker a few basic questions or notified him of certain changes. For a whole year CPG had been paying for coverage on four rental cars when it had only three. "When we asked, 'Why didn't you take that fourth car off the policy?' the answer was, 'You didn't tell us to," says CPG director of finance and administration Lee Gerstenhaber.
Amazed that they'd been paying needlessly, Alper and Gerstenhaber grilled their broker on all insurance-related spending. They were stunned at what they found. In CPG's workers' compensation plan, several employees were classified in higher risk categories than they should have been. Gerstenhaber says that the company had earlier made the mistake of basing such classifications on salary and position rather than on job activity. In other words, CPG executives who warranted a "clerical" classification didn't get one, since the company wrongly assumed that the category was just for administrative staff.
CPG also asked the broker to translate all policies into real English and categorize each one as a "must," "should," or "shouldn't." One policy, known as "bailee" insurance, didn't survive the translation test. In real English, a bailee is a person to whom property is entrusted for a special purpose and a limited period. Alper's broker explained that although CPG technically was a bailee when it stored clients' property, the bailee policy was redundant with the company's general liability coverage and was therefore unnecessary.
CPG found its biggest cost savings simply by asking the broker for lower premiums (and the resulting higher deductibles) on rarely used policies. At CPG's request, the broker created a grid for each policy, including a sliding scale of premium and deductible rates and a history of claims. In both professional liability and general liability, for which the claims were few and far between, CPG got lower premiums. All told, the company saved $10,000 in annual insurance costs.
But even more important to CPG's managers has been the newfound discipline of reviewing policies annually. "We've learned to be proactive and ask questions," says Gerstenhaber, "as opposed to just blindly accepting what they give us."