[Editor’s note:Last week,The Newsdiscussed the costs of insurance and the effect of rising rates on contractors’ businesses. In this final installment,The News explores ways to make insurance dollars go further.]

Everyone knows the importance of communication. It is especially important in the insurance business. In order to save money and maintain proper coverage, there has to be an open line of communication between the policyholder and the insurance agent. With so many factors impacting insurance premiums — including what types of coverage to buy, exclusions, inclusions, breaking news — it is imperative for business owners to keep in touch with their agents in order to keep insurance costs down and insurance policies up to date.

“I would encourage someone who is shopping for insurance to be prepared to supply the agent with lots and lots of paperwork,” said Derek Boyd, senior vice president of Horizons Insurance Group Inc., Dallas. “The more the agent can confidently tell the underwriter for an insurance company, the more comfortable the underwriter will be with quoting the account. Communication is very important.”

It helps to be proactive, too. Michael A. Weber, president of Thomas & Galbraith Heating and Cooling Inc., Cincinnati, saw his health care premiums go up 38 percent in the past year. Instead of sitting still, he took action.

“I had to do three things to manage our costs: eliminate a life insurance portion of our plan, increase deductible coverage, and begin an employee contribution for those wishing to be covered,” he said.

Another contractor, Bob Wilkins, owner of Wilkins Mechanical, Bedford, N.H., said he reviews his policies on an annual basis to get the best coverage and rates.

“Our insurance agent recommends that if you have two codes that an employee’s wages fall under, separate them according to how their hours were applied for payroll, especially if one of the codes is less and pertains to the employee’s occupation occasionally.”

In other words, said Wilkins, don’t use just one code believing it’s the only way it can be done or it may not make a difference.

“Every dollar counts and can add up,” said Wilkins.

Shop Around

With a little extra effort, Babette Watterston, office manager for Watterston Service Group Inc., Cochranville, Pa., found some great answers.

“It’s only been in the last year that we became large enough to start shopping group insurance plans,” she said, noting that she found a plan not widely known for small businesses, called a medical savings account (MSA). “The plan includes your normal health insurance plans, but with a large deductible. Currently for families it’s about $3,300.

“Along with that insurance plan is a medical savings account. It is an interest-bearing account into which the employee or the employer can contribute up to 75 percent of the deductible in a year. From that account you can pay any medical expense that is not paid for by the insurance.

“It is scary to get into at first, but we love the flexibility. As employers, we also love the lower costs.”

According to Watterston, the MSA Act is due to expire at the end of this year. She understood that Congress is expected to act on extending it soon.

Like Watterston, Brad Swanson of M&S Plumbing, Heating & Air Conditioning Inc., Manhattan, Kan., is another contractor shopping around for lower health insurance rates. His company’s health insurance rates went from just over $12,100 in 1998 to a projected $68,800 in 2003.

“Scary, isn’t it?” he asked. “And the increases we had in 1999 through 2002 in our business insurance were because of a workers’ compensation claim. We had a tech fall off of a ladder and break his arm pretty bad.”

Swanson was happy to note that his business liability insurance “held its own this year.”

“We actually had a decrease in premiums,” he said. “Health insurance, on the other hand, increased about 35 percent. We are in the process of getting quotes from other providers, but the quotes are shocking from some.”

Swanson said he is attempting to get the quotes with higher deductibles, fewer benefits, lower co-pays, etc. At the same time, he is trying to keep from having his employees split the cost of the premiums.

“We do get quotes annually on our business insurance, and for the last couple of years we have been on the health insurance of an outside payroll provider. It started out rather inexpensive, but that has changed. We’re looking into going back to doing everything ourselves again.”

Steve Rothacker of Unique Indoor Comfort, Dallas, has specific ways for reducing his company’s insurance premiums.

“We use bigger deductibles, review our insurance, and get quotes every year,” he said.

John Boyce, owner of Airco Service Co., Tulsa, Okla., said it is important to shop rates for a couple of reasons.

“You need a yearly review and you need to get competitive quotes yearly — especially to keep your agent honest,” he said.

Loyalty Does Not Equal Lower Rates

Some contractors believe that loyalty to a particular agent or company will result in lower premiums. Not so, cautioned Wilkins.

“Loyalty to your insurance agent is fine; however, insurance for a corporation does not appear to be discounted because of years of coverage,” said the owner of Wilkins Mechanical. “In fact, some insurance companies, when bidding, will give a higher discount than normal on the cost of the insurance to gain your business, with hope that you will stay with them and not bid again next year.”

Art Grace, owner of Krutsch Heating Inc., Taylor, Mich., nixed the myth regarding loyalty, too.

“I had a situation where we were hit with a 50 percent increase,” he said. “So I shopped around and found lower prices than we had paid the previous year.”

Safety Is A Key

Lower premiums are often directly related to businesses’ safety records. Fewer accidents resulting in property damage and injuries lead to a low “mod” factor, a rating or multiplier of premium rates.

Craig Jones, owner of Slasor Heating & Cooling in Livonia, Mich., said that insurance companies offer generic employee handouts that provide information on topics such as driver safety training, site inspection for loss prevention, proper fluid storage, and installing belt guards on shop equipment.

“Insurance companies offer free safety signage, M.S.D.S. [material safety data sheet] literature, and other requirements that would lessen the [contractor’s] exposure to fines or lawsuits,” he said.

In the eyes of Jeff Miller, vice president and general manager of Al-Don Services, Creve Coeur, Mo., insurance companies often do more good than they are given credit for.

“I think the rising cost of insurance will force more contractors into doing more safety training,” he said. “Everyone knows that labor costs and insurance costs are the fastest growing expenses, so if the insurance industry partners up with contractors to show contractors how they can save money versus constantly digging into pockets, they will gain tremendously. Most people view insurance as a necessary evil instead of a possible benefit for customers doing business with them.”

By all means, if an agent does not discuss the benefits of a good safety record, it may be time to shop around. One can do the shopping over the Internet, too. (See sidebar below.)

Small Business Health Fairness Act

Small-business owners breathed a collective sigh of relief when, on June 19, the U.S. House of Representatives passed H.R. 660, the Small Business Health Fairness Act of 2003. The bill is designed to improve access to affordable health insurance for millions of American workers and their families.

In a statement from the Office of Management and Budget, it was pointed out that an “estimated 85 percent of the 41 million uninsured Americans are members of working families. Employees of small businesses are half as likely as employees of larger firms to receive insurance through their employers, and the cost of that insurance is often 20 to 30 percent higher. Additionally, insurance costs are rising much more rapidly for small businesses than large firms.”

The bill still faces an upward battle for passage in the Senate, but HVACR and construction industry leaders remain optimistic.

“National Association of Wholesaler-Distributors [NAW] member companies, like other smaller employers across the country, are truly struggling in today’s highly concentrated health insurance marketplace and their workers are highly affected by that struggle,” said NAW President Dirk Van Dongen. “This [bill] employs an effective marketplace approach to this problem, and one that involves little, if any, cost to the taxpayers. For these reasons, enactment of the bill is among NAW’s top legislative priorities and in fact leads our health policy agenda.”

“This legislation is a concrete step to giving small businesses, their employees, and their families a positive solution to health care coverage and offers a blueprint on how to solve America’s health care coverage needs,” said Kirk Pickerel, Associated Builders and Contractors’ president and CEO.

Higher premiums can have several effects, two of which are somewhat painful. Employees may be asked to contribute more. Also, customers may have to pay higher costs.

Swanson doesn’t care for either scenario. “We are still shopping around to see what we can do,” he said. “Our advisor says we have to draw the line and do it now. As of yet, we have not mentioned anything like that to our people. It is, in essence, a pay cut for them, but how do you overcome that kind of an increase?

“We know we’ll have to raise rates, and we are highest in Manhattan already. Guess we’ll see what happens.”

Jones believes higher rates are a trickle-down effect from the 9/11 terrorist attacks. “The great loss in equity in the stock market supposedly forced insurance companies to look to premiums as the only way to pay for losses from claims,” he said.

Meanwhile, Larry Taylor, owner of AirRite Air Conditioning Co Inc. in Fort Worth, Texas, believes contractors should get involved in the legislative process to enact changes in insurance laws.

“We are going to have to have a much stronger voice in the state House of Representatives to make change happen,” he said. “For example, we need changes in the auto insurance to make it a true no-fault plan. Each driver goes to his or her insurance company for a claim, regardless of who caused the accident. If that happens, then the false claims will go away because of someone not having coverage on themselves.”

Miller agreed. In his estimation, HVACR contractor groups can be influential, too.

“I think associations like ACCA, Excellence Alliance, Airtime 500, etc., could have a positive effect helping contractors of all sizes if Congress passes the association insurance issue,” he said.

Sidebar: Finding Insurance Advice Online

Thanks to the Internet, small business owners can shop for insurance policies online in the comfort of their own office or home without the pressures from in-person visits by insurance agents.

One of the more informative Web sites is www.insure.com. The Web site provides tips for shopping around for the best policies and also provides price quotes. Some of the free advice centers on the importance of a good safety record. Not only does having a good “mod” factor result in winning competitive bids, it also helps lower premium costs.

According to insure.com, “Liberty Mutual [Insurance Co.] maintains a three-tiered system for its workers’ comp policyholders. Standard policyholders don’t receive much preferential treatment in terms of rates, and there’s a bottom class considered poor risks that are doomed to pay higher premiums.

“But companies with proven safety track records and few claims can move into a ‘preferred’ policyholder class, where Liberty Mutual gives special considerations. Usually, employers are rewarded for high safety standards by a premium calculated using a lower base rate than their state’s average.”

Two other Web sites, www.ehealthinsurance.com and www.quotesmith.com, are also useful in helping small businesses find affordable, top-rate health insurance coverage for employees.

Another Web site, www.allbusiness.com, offers tips on what to look for in an insurance provider. Here are some pointers from that Web site:

“Insurance agents are essentially commissioned salespeople who work for specific insurers. As a result, they may not always offer the most competitive policies. Critics of agents believe that they cannot be objective about insurance products. Others insist that the only way to find your way through the myriad of insurance options is with the help of a good agent. Just keep in mind that some are more helpful than others.”

AllBusiness recommends that you ask an agent the following questions about individual insurance companies:

  • What is their reputation for paying claims?

  • What is their financial rating?

  • Have they been in and out of the market or are they a long-term player?

  • Can they provide loss prevention services?

  • Can they offer multiple year policies? (These will often save the company money.)

    Still another Web site — www.insurancefinders.com — offers tips on how to lower premiums.

    “An insurance company bases insurance premiums on the risks involved,” it states on the site. “To do this, they evaluate the situation to determine the risks, or potential for losses. The insurance company determines its rates on the results.

    “The steps you take today to lower your risks can not only help safeguard your business, but may make you eligible for lower insurance rates.” According to the Independent Insurance Agents of America, business owners should consider these steps:

  • Maintain adequate lighting throughout your business premises.

  • Keep electrical wiring, stairways, carpeting, flooring, elevators, and escalators in good repair.

  • Install a sprinkler system, smoke and fire alarms, and adequate security devices.

  • Keep only a small amount of cash in the cash register.

  • Keep good records of inventory, accounts receivable, and equipment purchases.

  • Consider keeping a second set of records off-site, such as with your accountant, insurance agent, or at home.

  • Make sure your employees have good driving records.

  • Make sure your employees know how to lift properly and use all necessary safety equipment.

  • Talk to your employees about safety practices.

    — John R. Hall

    Sidebar: Attorney Provides Insurance Advice To REX Attendees

    SACRAMENTO, Calif. — Mary Lou Maierhofer had some tidbits of information for attendees to her “Know Your Rights” seminar at the 2003 Annual Radiant Panel Association (RPA) Conference and REX (Radiant Expo) tradeshow. Some were amusing, and others were very serious, but all are useful.

    Maierhofer works in general civil litigation defense with an emphasis on professional malpractice, product liability, insurance defense, and personal injury for the law firm of Meyer, Darragh, Buckler, Bebenek & Eck in Pittsburgh. She spoke about the types of insurance that contractors should have and what to look for when researching insurance. “If you are spending less time with your insurance agent than you are with your hated mother-in-law, you are in trouble,” Maierhofer said. “Your agent needs to be involved in what you are doing. And everything you do with your agent should be put in writing.

    “If you need coverage and your agent says that it is part of your policy, make sure your agent confirms it — in writing — even if you send a letter back to your agent confirming the coverage.”

    Maierhofer was very specific about documenting all conversations and correspondence regarding insurance matters, including listing the people that contractors deal with and the names of their insurance companies. “If you have documentation available during an audit, it can help to lower your insurance premiums,” she noted.

    Some Useful Terminology
    Maierhofer gave examples of specific situations that might prove problematic.

    “When you send someone over state lines, make sure you have the coverage needed for that employee in that state,” she said. “Even if you have something in writing, it might not protect you (e.g., workers’ compensation) in another state. The other state may trump you. While you are at it, do a corporate checkup to make sure everything is on file with your state.”

    She gave an example of “special mission” coverage, which involves an employee who is sent to do some work “off the clock.” “An employee was sent home ‘off the clock’ to change into appropriate work clothing,” Maierhofer said. “He got into an accident during the trip and the company had to pay workers’ compensation.”

    Some other coverages/clauses you should be familiar with include:

  • Umbrella — This could prove useful when working in any building, including higher-priced homes, which contain a lot of valuables.

  • Terrorist — Some insurance companies are looking into offering this type of coverage in urban areas in the event of a terrorist attack.

  • Business risk exclusion — This is a clause that does not protect a contractor for work performed by a subcontractor.

  • Work product — This is the “worst area” of insurance according to Maierhofer. “You need to know the wording of the policy. You are looking for ‘errors and omissions’ coverage,” she said.

  • Tail coverage — This provides coverage for work already done.

  • Indemnity clauses — “Run away from them,” she said. “This clause basically says that you will pay for someone else’s screw-up. You are basically taking responsibility for all work done.”

    Avoiding Lawsuits
    Maierhofer said that the most important thing anyone can do to avoid lawsuits is to communicate. “Communication is a key — between all parties,” she said. “This keeps everyone involved and shows your concern. And put everything in writing!”

    She said that any changes to contracts must be put in writing. She also suggested taking photographs to document a problem and keeping them around for a while. “Sometimes you can be responsible for work performed for up to 12 years,” Maierhofer stated. She recommended keeping physical evidence too, such as a damaged product.

    Maierhofer said that business owners should also take extra steps to ensure that employees know their job duties and what is expected of them. “Even if you have only one employee, you need an employee manual,” she stated. “Everyone needs to know company rules and regulations and job descriptions.

    “States have form employee manuals. You can also find more about regulations involving employees by visiting www.eeoc.gov.”

    If another company calls and asks for a reference on a former employee, Maierhofer said the only requirement is to give “name, rank, and serial number” and no other information should be volunteered. If an employee is being terminated, Maierhofer recommended “getting their keys and getting them out of the building as soon as possible. Get someone to witness it and keep it as low key as possible.”

    She also doesn’t recommend signing “noncompete” covenants because “judges will try to break them if they can.”

    If you are named in a lawsuit, Maierhofer recommends calling your insurance or insurance company immediately.

    — John R. Hall

    Publication date: 09/01/2003