General Liability Insurance

If you have ever wondered how the insurance company arrives at a premium quote for your business, you will want to read further. Let’s talk about Credits, Prior business Losses, and the business website.

Credits

There are mitigating factors to the rates. Rates have some leeway based upon credits that can be applied by the underwriter. The underwriter is the one who evaluates the application for insurance from a particular business and decides whether to quote the coverage at all or to write it or how to rate it. If the underwriter applies credits to mitigate the applied rate, he or she must justify that credit with some notation about how well the business is maintained, how much experience the business owner has, and other information. They try to get to know the particular business so that they can apply the best rate possible and win the business away from other quotes that might have been offered by other insurance carriers. Of course, there are other rating factors as well. 

Prior Business Losses

When quoting particular business insurance, the underwriter will ask for “loss runs.” These are a declaration of losses experienced by the current and prior insurance carriers who covered this business. they will detail the amount paid out on each particular loss. The obtained loss runs should go back five years. They must be on the letterhead of the insurance carrier who covered the business for those years. They must also have been procured within 90 days of the renewal date of the current policy or of the quote. 

Why 90 days and not last year’s loss runs? How often have I seen claims closed, reopened, or new claims appear even after 5 years! The loss runs must be “fresh” in order to be accurate.

• If a business has only two years of experience, it won’t have five years of loss runs, and this can affect the credits applied.
• If the loss runs show many small losses, a large loss, or particular types of losses for that type of business, that will affect credits, and sometimes whether the underwriter even wants to offer a quote.
• If an underwriter is not familiar with a particular type of business, you may not get a good quote. It could be up to the broker to “educate” the underwriter as to what the business does.

While we are discussing the broker’s role, I have gotten better quotes by assuring the underwriter when I have had a client for five, ten, or twenty years, in some cases; or I know the family, or I have other types of business with the owner or other signs of familiarity. Brokers have to know their underwriters, and underwriters have to know the brokers well enough to trust them. If an underwriter has no faith in the broker because the broker lied in order to push through a particular piece of business before, then this quote may be a difficult one to get.

Website

Everyone has a website now, and on the website, we brag about our capabilities. This helps us get business in the door. But… if the website has information on it that is not on the application, there could be a problem.

If we take a Loyal insurance coverage as an example, the insurer does not consider a small pick-up truck that travels small distances within the city as risky as a larger truck that needs to travel long distances transporting merchandise.

As with first month free car insurance, in the case of a nail salon that only claims to do nails, but their website says they do eyebrow waxing, or worse yet, Brazilian waxing, the underwriter will not like it. Waxing is considerably riskier than doing nails and is more likely to cause a lawsuit. That’s bad. Can’t happen? Did happen. Every example in this writing comes from something in my own experience.

Newsflash!!! Underwriters ask for your website URL so they can double-check what you do. If it does not match your application, they will ask for clarification. They may ask you to remove wording that you say does not reflect what you do. “I had it on the website because I thought I might do some waxing, but I haven’t done any, and I won’t do any.” Take it off the website in order to avoid underwriting problems.

The underwriter has a certain degree of discretion. If they are uncertain, you may not get any quote at all. If you add service during the policy year that they don’t like, your policy may get “nonrenewed.” If everything is good, you may get a great quote.