How much does it cost?
Business insurance premiums are largely driven by sales or payroll, together with loss history and the business's industry.
Sales generally drives liability policy premiums while payroll determines Workers' Compensation and Disability.
The greater the sales or payroll, the greater the risk to insure and therefore the larger the premium to pay for it.
Loss history, also called loss runs, are the record of claims made to insurance companies in the previous three to five years. To secure a new policy, loss runs must be requested in writing from the existing insurance company by the business owner. New ventures that have no history are exempt.
What's the difference between an insurance broker and an agent?
The independent broker owes his allegiance to the customer, and represents the customer to many insurance companies in order to get the best deal for the customer. A broker can get multiple quotes and play many insurance companies off one another so you get the best result.
By contrast, many agents are captive to one insurance company, meaning the agent is employed by the insurance company, is responsible for marketing the company's products, and looks out for the insurance company's interest in the sale. Even agents that are not captive to only one insurance company are still considered as working for the insurance company in the transaction.
The difference is so important that brokers and agents have different insurance licenses:
Broker: By law the broker acts on behalf of the customer ("...aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured...")
Agent: The agent works for an insurance company ("...authorized or acknowledged agent of an insurer, ... who acts as such in the solicitation of, negotiation for, or sale of, an insurance, ...")
Here is the link to the NY law specifying the difference:
How many brokers do I need?
Only use one broker, please, because insurance companies quote a company once for one single broker. That's it.
Get multiple quotes, of course, but from one broker. Insurance companies don't like multiple brokers bringing the same company to them for quotes. They view it at best as a waste of their time and at worst as potentially fraudulent.
Insurance companies won't give the quote to the second broker and can pull quotes when they receive a company multiple times. If any of the information is not the same on the applications, insurance companies suspect that they may be gamed for a better rate and they withdraw the quote.
Using multiple brokers:
• Reduces choices when carriers see the same company for multiple quotes.
• Takes up more of your time because you start from scratch with a new guy and wind up covering the same territory two or three times.
• Casts you in a bad light and starts a negative reputation. Insurance carriers (and brokers) keep files of their work. Don't be the company with a history of shotgun marketing through multiple brokers.
So using multiple brokers may be done with the best of intentions: to get a better price, like you would in almost any other market, but multiple brokers harms you in the insurance market.
By all means ask your broker for competing quotes from different carriers. If he doesn't get them for you get a new broker. You can change you broker with a Broker of Record letter, which is just a formal letter from you to a carrier saying "This is my broker now." Your new broker will be more than happy to draft it for you.
That's why one independent broker is all you need. One broker can get multiple quotes from different insurance companies, so you can compare price and coverage and make an informed, educated choice.
What happens if I don't buy insurance?
Legal requirements in New York State:
• If you have employees, you are required to carry Workers' Compensation and Disability (2 separate policies).
First offense penalties for noncompliance are up to $200 a day for failing to secure Workers Compensation and up to 1 year in prison for failing to secure Disability insurance.
• If you own a car or truck for your business, you are required to carry Auto Insurance. (Renter's need a Non-owned Auto policy).
• If you lease space, the landlord may require Liability Insurance in the lease for you, and for any improvements or repair you do.
• If you have investors (beyond close family), they generally require Directors and Officer's Insurance to cover their liability.
• If you make a product, your resellers may require Product Liability Insurance to back up their risk in selling your product.
• A bank may require you to maintain life, business interruption, fire or other insurance to protect their loan investment.
• If you work on site, the site owner may require Liability Insurance.
What is the difference between admitted and nonadmitted insurance companies?
Insurance is regulated at the state level. Here is New York as an example, but the same process applies generally in all states.
An insurance company founded in New York is considered 'domestic' in New York and 'foreign' in the other 49 states. This company must apply for a license with the Department of Financial Services, (NYDFS). Once approved, the state gives the company a Certificate of Authority making that company licensed in New York only. That company is required to follow all New York state's insurance rules, laws, filing requirements, other regulations and is considered and 'admitted' carrier.
The admitted insurance company:
• Is required to file forms and rates for approval by the NYDFS.
• Is not permitted to change those forms and rates for the rest of the following year.
• Pays into to the Guarantee Fund which covers insolvent admitted insurance companies.
An insurance company founded in another state, goes through this whole approval process in its home state, but has a choice for doing business in New York state:
1) The foreign company may go through New York's approval process, get licensed as admitted in New York and add on another state's complete regulatory burden, or
2) The company may apply to be an Excess and Surplus insurer in New York, which has strict solvency and security requirements by the NYDFS, but has a lighter regulatory touch in other areas. Excess and Surplus insurers are legal, just not licensed in the same way. Excess and surplus carriers operate in the 'nonadmitted' market.
The Excess and Surplus market was created to handle more volatile, and unusual risks outside the appetite of the admitted market and has thrived as a source of innovation developing many new lines of insurance to fit emerging needs.
Excess and Surplus insurance companies:
• May customize rates, terms and conditions throughout the year to match the changing marketplace, unlike domestic companies.
• Do not pay into the guarantee fund, however AM Best, which rates the financial condition of insurance companies found that the solvency rates of Excess and Surplus companies exceeds the licensed marketplace.
• Must have a minimum $45 million net worth, under New York regulations, in addition to their reserves and reinsurance coverage.
• Excess and Surplus insurance can only be sold by brokers who have the additional Excess and Surplus broker license.
• Excess and Surplus lines are sort of a backup market, only available after three admitted insurers have declined the risk.
• Excess and Surplus lines have a 3.6% tax and a 0.2% stamping fee, and additional paperwork, but all in are still competitive with the admitted market.
Bottom line, the terms "nonadmitted", "unauthorized" or "unlicensed in New York State" are technical in nature and have no bearing on an insurance company's financial health or risk. The Excess and Surplus market may provide the insurance you are looking for at an attractive price, depending on the situation. Large conglomerate carriers often have both admitted and nonadmitted subsidiaries in the same market.
Why aren't employees covered in a liability policy?
Worker's compensation policies were specifically designed to cover injuries to employees on the job. Disability, which is also required in New York State, covers workers injured off the job.
What are Occurrence and Clams Made Triggers?
Events, such as an accident, cause damage and loss that triggers an insurance policy to respond. These events are coverage triggers.
The "Occurrence" version covers claims for injury or damage which occurred during the policy period. Notice of the occurrence can be reported years later and still be covered under the policy in effect at the time.
The "Claims Made" version provides coverage if the claim is first received and reported during the policy period. The Claims Made policy coverage begins on the Retroactive Date. Any claim before that would be filed under a previous policy.
Claims Made policies also have various Extended Reporting Periods or Tails following the cancellation or expiration of the policy, since some losses resulting in claims may not be immediately apparent.
• A Mini Tail is an automatic 60 day notification period following cancellation or non-renewal of a claims made policy.
• A Midi Tail is an automatic 5 year extension of coverage that applies only to claims notified during the policy period or the mini tail. The Midi Tail allows for the fact that notification of a loss and filing a full claim are two separate actions, requiring different amounts of time. Five years should be plenty of time to finish filing the claim.
Alternatively, the Supplement Extended Reporting Period may be purchased only during the mini tail. Coverage provided under this endorsement allows for claims to be made for an unlimited time period that occurred during the policy period. This extended period will have its own limits. Once the premium is paid for this endorsement coverage cannot be cancelled.
Due to the complexities if writing the Claims Made form, the Occurrence form remains the more common policy.
Why is NY Workers' Compensation so expensive and What is Third Party Action Over?
Without workers' compensation laws, an injured employee's only source of compensation was through litigation. Employees had to prove employer negligence to gain any compensation for lost wages or medical bills. Few workers could afford to bring a suit and employers had several effective defenses against charges of negligence. The result was that employers were not held accountable for workplace safety or employee injury and successful suits yielded unpredictable rewards frequently unrelated to the actual lost wages or medical bills incurred.
To create a functioning workers' compensation plan, labor and industry each needed to make a concession in what became known as The Great Tradeoff or the exclusive remedy of workers' compensation:
• Employers agreed to pay medical bills and lost wages, regardless of fault
• Employees agreed to give up the right to sue the employer
Today in New York, the exclusive remedy of workers' compensation is not so exclusive. In New York certain injured employees may collect workers' compensation benefits, then sue a third party (the property owner) for contributing to the employee's injury--third party action.
Under New York's "Scaffold Law", Labor Law 240 and 241, employee independent contractors can sue the corporation on whose land and facilities they work following an injury. These other "responsible parties" are subject to absolute liability, meaning common law negligence standards do not apply. The liability is passed back to the employer by prior agreement. The result adds a substantial litigation and judgement component to the employer's workers' compensation policy. The need to provide this additional legal defense and pay potential judgements drives up policy premiums. New York is the last state to retain a form of scaffold law that leads to signification third party-over action lawsuits.
A common misconception is that these laws only apply to construction firms and developers. Not true. In 1999 a laborer was injured while changing a fluorescent light bulb in a commercial building when a step-ladder gave way and he fell. He sued the independent contractor who hired him and the building's owner. The building owner was held strictly liable for the worker's injuries, even though it was actually the independent contractor who maintained the unsafe work environment.
Third party lawsuits like these drive up New York workers' compensation policy premiums.
What is the difference between "Basic", "Broad" and "All Risk" coverage?
The difference between broad and basic coverage is the types of perils covered. All risk policies cover all perils except those specifically excluded. All risk policies provide the most complete coverage.
Basic coverage includes damage caused to your property by these specific perils:
• Internal explosion or Sprinkler Leakage
• Vandalism and Malicious Mischief
• Riot or Civil commotion
• Aircraft or Vehicle
• Volcanic Eruption or Sink Hole Collapse
Broad coverage adds these perils in addition to the basic list:
• Burglary damage
• Ice, snow, sleet and Freezing Pipes
• Accidental discharge of water
• Falling objects
• Electrical damage
• Tearing asunder
Did Pirates really have Workers' Compensation?
The earliest workers compensation programs date to 18th century pirates. Before they were considered outlaws, these privateers were highly-prized allies of government; plundering and sharing spoils with pre-Revolutionary colonial governors in return for a safe port.
Of course, this was dangerous work involving serious physical risk to life and limb. Therefore a system of compensation developed to address physical loss, leading to claims payable in gold pieces of eight:
• 100 for an eye or finger
• 400 for the left leg
• 500 for the left arm or right leg
• 600 for the right arm
For context, among colonial Americans in this period the average wage was roughly two pieces of eight a week, making the loss of a finger or eye benefit roughly a year's wages and the loss of the right arm close to six year's wages. These benefits compare surprisingly close to modern compensation schedules after inflation.
Additionally, injured crew members could remain on board with less strenuous duty in an early pilot-form of return-to-work program.