| The current hard insurance market has created a | | | | control. This area sends a message to the |
| return to the days of doubt and concern for | | | | underwriter of how serious you are about making |
| obtaining quotes from insurance carriers. This is a | | | | your company a profitable venture for the |
| condition not seen since the early 1990's. For many, it | | | | underwriter, and that is the goal of a submission. If |
| has even brought consideration for using the dreaded | | | | you have only the basic, standard procedures in place |
| "assigned risk" pool again. So how does a company | | | | then you had better have a stellar record in all other |
| determine the options available with this market? The | | | | components. A solid, proactive, working risk |
| first step is to determine your insurance desirability; | | | | management program will produce the greatest |
| that is, how attractive you are to the insurance | | | | amount of interest and most competitive quotes. |
| carriers. | | | | Your risk management program starts with your |
| Determining your insurance desirability involves many | | | | company representative. It is advisable not to take |
| factors. When an underwriter gets your submission, | | | | this assignment lightly. This is not just a position of |
| he is going to focus on certain points to determine if | | | | claims reporter or carrier communicator. It is the |
| your account is favorable to even consider a quote, | | | | individual(s) that protects your company from having |
| much less give a competitive price. Therefore, you | | | | claims and minimizing the damage when they do |
| must package your submission in such a way that it | | | | occur. It is not required that you go out and hire a |
| provides the underwriter with the information he | | | | designated individual, but you should definitely make |
| needs quickly, conveniently and completely. | | | | sure your representatives are knowledgeable, trained |
| Otherwise, he will just decline the submission and | | | | and qualified for the tasks for which they are |
| send you elsewhere (remember it is now their | | | | responsible. |
| market). | | | | Extensions of your in-house representatives are your |
| The five primary types of information an underwriter | | | | risk management resources and contacts. Many |
| considers are Exposure Base, Underwriting History, | | | | companies will hire third-party consultants for those |
| Risk Management Program, Insurance Program Type | | | | situations that in-house representatives are either not |
| and Company Financial Position. Failing to include any | | | | qualified to deal with, or do not have the time to |
| of these pieces of information jeopardizes the | | | | handle. Some companies will even go to the extent |
| opportunity for receiving the quote. Since your first | | | | of designating a third-party company as their risk |
| goal must be to get a quote, it is critical that each of | | | | manager. Additional resources include any |
| these components is present. Once you have | | | | organizations with which you are affiliated, such as |
| determined that they are there, you will want to | | | | ASA, TempNet, etc. that provide additional risk |
| work on the attractiveness of each section. Let us | | | | management resources. Include companies that |
| look at each of these areas in detail. | | | | release manuals like BLR or CCH if you use their |
| Exposure Base | | | | services. Each of these affiliations should be described |
| Required documentation: projected payroll code by | | | | in detail with regards to their role in your company. If |
| state | | | | you don't have at least one of these resources, |
| The "Exposure Base" is used to determine the type | | | | strongly consider securing one of them before your |
| of business on which your company focuses its | | | | next submission. |
| operations. Are you clerical, light industrial, industrial, | | | | The foundation of your risk management program is |
| technical, medical or a combination thereof? Many | | | | your manual, your forms and your procedures. If you |
| staffing company owners assume that clerical has | | | | do not have your risk management efforts |
| the least exposure and will be the easiest to insure. | | | | documented, the underwriter will most likely not |
| That is not necessarily the case. Although clerical | | | | recognize them. The perception is that if it is not |
| exposures tend to have fewer incidents, often they | | | | written, then how can it be a standardized practice |
| can be very expensive claims (carpal tunnel for | | | | by your entire company, not to mention the lack of |
| example). When you consider that clerical premium | | | | proof that will exist should you encounter a claim. It |
| rates are among the lowest, not much premium | | | | is not necessary to bury yourself in paperwork, but |
| exists for funding losses that may occur. Therefore, | | | | simple, easy-to-complete forms make a big |
| it only takes one or two claims to make your | | | | difference. On the other hand, if you have a manual |
| account unprofitable for the carrier. The most | | | | that just sits on your bookshelf, you are not going to |
| attractive mix of business for carriers is a | | | | receive credit for an effective risk management |
| combination of clerical and industrial exposures. This | | | | program. Insurance carriers perceive that many |
| provides them with the comfort of knowing | | | | companies in the mid 1990's bought a manual for that |
| adequate loss funds exist to pay claims. | | | | very reason. Underwriters are now looking for |
| Changing your exposure (from light industrial to | | | | evidence that risk management manuals are actually |
| clerical for example) is not something that is easy to | | | | being used. The aforementioned forms are one step |
| adjust in a short period of time. You only have limited | | | | in providing this proof. Another is accessibility of the |
| control over making your company attractive in this | | | | program. Considering current technology, manuals |
| component. The best approach is to provide | | | | that are on the computer (CD, Internet, etc.) are |
| complete and accurate payroll projection information. | | | | given greater consideration as effective manuals as |
| Projecting too low to get a lower quote will only | | | | opposed to hardcopy. Using a third-party to confirm |
| send up red flags that you are either hiding payroll or | | | | the active use of a manual is also beneficial. Copies of |
| expect a business slump. Since carriers like to insure | | | | any of the above types of information will only serve |
| companies that are in a steady growth position, you | | | | to enhance your submission to the underwriter. |
| are best served to be optimistic, yet realistic, in your | | | | Insurance Program Type |
| projections. | | | | Required documentation: expiring insurance policies |
| Underwriting History | | | | The type of program your company desires and has |
| Required documentation: 5 years of payroll & | | | | experienced will have an impact on your submission. |
| premium totals, current & 4 prior years of loss | | | | The mid to late 1990's were a period when |
| runs, and experience modification worksheets | | | | guaranteed cost was frequently used at bargain |
| Underwriting history is your company's track record | | | | prices. Due to the recent catastrophes and the high |
| for performance on your prior insurance policies. In | | | | number of losses in general due to insured apathy, |
| essence, this is the underwriter's scorecard for | | | | underwriting profits have decreased significantly. The |
| determining quotability and pricing. Unfortunately, this | | | | focus by carriers on these events has become even |
| area is where many companies experience the | | | | more important with the downturn of investment |
| greatest problem in obtaining the quote. The soft | | | | income. Thus, competitive guaranteed cost policies |
| market from the mid to late 1990's caused many | | | | are rare. Carriers are more interested in companies |
| firms to place less emphasis on the importance of | | | | retaining some of their losses through retrospective |
| controlling losses. The result is negative underwriting | | | | programs, higher deductibles and other forms of |
| experience. Leaving out certain years of information | | | | self-insured retention policies. Your company's |
| may seem to be a good idea but this tactic will only | | | | experience in retention insurance affects the types |
| delay the process, as most every underwriter will | | | | of policies for which you may qualify. Carriers want |
| hold the file without complete updated information. | | | | to know that you are familiar with how alternative |
| Additionally the underwriter may also become | | | | insurance works before providing that type of quote. |
| uncomfortable with a company that has poor | | | | Your financial resources will also come into play. Most |
| record-keeping procedures. | | | | deductibles and hybrid-captive programs require |
| The payroll and premium provided to the underwriter | | | | collateral such as cash or letters of credit. Cash flow |
| should be audited at least for the second through | | | | businesses such as the staffing industry often have |
| fourth years prior; thereafter, estimates may be | | | | difficulty acquiring letters of credit and usually have |
| used. The underwriter will refer back to your | | | | limited cash available. Yet selecting this route will grant |
| projections to establish growth patterns and | | | | you much more favorable quotes than the traditional |
| fluctuations in payroll. If you have downward or | | | | guaranteed cost. Make sure you do your research |
| extreme changes, be sure to provide an explanation | | | | and speak with your broker/agent or consultant |
| as to why the action occurred. Loss runs should be | | | | before choosing an alternative program. A mistake in |
| valued ("as of" date) no more than 90 days from the | | | | interpretation can literally cost you hundreds of |
| date you will be providing information to the | | | | thousands of dollars. |
| prospective carrier. If all claims are closed, | | | | Company Financial Position |
| underwriters may accept older loss runs for third and | | | | Required documentation: financial statements (audited |
| fourth prior years. Any action that your company has | | | | if available) including balance sheet, any other |
| taken to address loss trends will improve its appeal | | | | pertinent documents |
| to the carrier. The underwriter will be looking for both | | | | The company's financial position is the fifth basic |
| claims frequency (number) and severity (dollars). If | | | | component of the submission process. Underwriters |
| you have dropped a client or specific type of | | | | need to establish that the prospective insured is |
| business, made changes to the workplace, | | | | financially stable and capable of honoring the |
| implemented new policies, etc., include this information | | | | insurance contract they are going to quote. This is |
| with your submission. It sometimes makes the | | | | the component most companies have the greatest |
| difference between getting a competitive quote and | | | | objection to providing due to confidentiality. A |
| getting a declination. | | | | method to accomplish this is to request that the |
| Finally, you will need to submit your experience | | | | carrier sign a confidentiality agreement. This can be |
| modification worksheet. For most states, this comes | | | | included in the submission cover letter. It will protect |
| from the NCCI, although a few states develop | | | | your company against the release of your financial |
| company experience modifiers themselves. Obviously | | | | information; yet provide the carrier with the |
| this modifier is used for developing your premium as | | | | documentation necessary to verify your company's |
| it compares to others conducting similar business. | | | | stability. If there are any potential issues the |
| Another unknown is that the modifier also serves as | | | | underwriter or CPA may identify, explain these in a |
| a validation source. Your experience rating worksheet | | | | separate cover letter and include it with the financial. |
| includes both your payroll by code and your claims | | | | The above process of course is simplified. |
| history for the second, third and fourth prior years | | | | Underwriters use many statistical formulas and |
| (the modification process does not use the current | | | | spreadsheets in review of each submission. In order |
| or first prior year). If these numbers do not match | | | | to increase your chances further, you may want to |
| up, the underwriter will, at the very least, request | | | | consider requesting from your broker/agent or a |
| additional information and this will slow down the | | | | consulting firm to provide a third-party opinion or |
| process. Some underwriters will see this as a sign of | | | | synopsis to the carrier and to make certain that all of |
| a dishonest submission and will not proceed. Review | | | | the proper documentation is included in your |
| or have your broker/agent review your experience | | | | submission. This will avoid delays and ensure that you |
| rating worksheet and provide support explaining any | | | | receive the most competitive quote available. |
| numbers that do not match. | | | | Typically, a quote will be provided 60-90 days after |
| Risk Management Program | | | | your submission is received by your broker/agent. |
| Required documentation: list of representatives, list of | | | | Your internal preparation should begin no later than |
| resources, manuals, forms, procedures, internal or | | | | 120 days before your policy expiration. No |
| third-party evaluations | | | | guaranteed process exists for getting a quote, but |
| Your risk management program is perhaps the most | | | | following the above formula will grant you the best |
| distinguishing component of your submission. It is | | | | opportunity to stay afloat in a hard insurance market. |
| definitely the one over which you have the most | | | | |