Subscription Biz Basics: Business Insurance 101, Part 2

Buying insurance online vs. through an agent, choosing a carrier and more

In last week’s installment of Subscription Biz Basics: Business Insurance 101, Part 1, we outlined the different types of business insurance you might want to consider for your subscription or subscription box company. In part 2, we’ll cover how to buy business insurance including:

Business insurance basics
Buying online versus from an agent
Selecting an agent
Choosing an insurance company
Coverage amounts and premiums
Recommendations
Additional resources

Before we dive in, let’s be honest. Buying business insurance is not a sexy topic, but it is a necessity, particularly where certain types of insurance are required by law (e.g., workmen’s compensation).

However, business insurance can be your friend by protecting your assets against potential risks including personal injury, loss of inventory, theft, fire, flood, professional liability and data breaches, just to name a few. We hope you’ll never face any of these perils, but protecting yourself and your subscription company now can prevent huge losses – including the loss of your business – later.

Business insurance basics

Before we discuss how to buy insurance, let’s go over some business insurance basics.

The insurer, or insurance company, will assess the risk they are willing to assume before they issue your policy. This underwriting process involves a review of your application and an assessment of risk factors, including business location, building type, local fire services, coverage amount being requested and desired deductible. Specific types of policies like life insurance policies may have additional underwriting requirements.

Based on the insurance company’s assessment of your risk, the insurer may choose to decline your application, accept it as submitted, or offer a modified policy from what you initially requested. For example, perhaps you applied for a $1,000,000 key person insurance policy, but the insurer was only willing to go up to $500,000 based on evidence of insurability.

Buying insurance online versus through an agent

There are two ways to buy insurance: online and through an agent. Each method has advantages and disadvantages. We’ll examine each, and you can choose which method will work best for you. Whichever you choose, we encourage you to shop around to compare insurance coverages, carriers and policies.

Buying business insurance online

There are a number of insurance websites like Insureon.com and GEICO that will give you a quote online, including some like Esurance.com, an Allstate company, that will compare different policies from different companies. Most will have a customer service rep or an agent who can answer your questions.

Here are some factors to consider when selecting an online insurance vendor:

The lines of insurance they offer
The states they are licensed in
The companies they represent
An agent or customer service rep who can answer questions
How long they’ve been in business
Customer reviews and/or testimonials
Complaints filed against them in your state

Buying business insurance through an agent

Because business insurance needs can be complex, it can be helpful to work with an experienced insurance agent. Generally, there are two types of agents: those who represent only one company (e.g., State Farm) and insurance brokers who represent multiple companies.

Neither type is better than the other, but keep in mind if you go to an agent who represents only one company, they will only be able to offer that company’s products. However, they will be intimately familiar with their company’s products and underwriting requirements. A broker, on the other hand, will be able to offer products from several companies.

Here are some general guidelines to help you choose the agent that’s right for you:

Shop around. Before choosing an agent, ask for referrals from business associates and/or your local Chamber of Commerce.
Check with your state insurance commissioner’s office to be sure the agents you are considering are licensed to do business in your state and that they are licensed to sell the lines of coverage you want to buy. For example, someone licensed to sell life insurance may not also be licensed to sell property and casualty insurance. Check with your state insurance commissioner also to see if any complaints have been filed against those agents.
Identify which companies the agents you are considering represent. Do they represent one company or multiple companies?
Ask how your agent will be compensated for acquiring your business – via fees, commissions, etc.
Make sure your agent is familiar with your business so they can properly advise you on the types of business insurance that will benefit you.
Choose an experienced agent familiar with risk management techniques to help you minimize the risk to your subscription company.
Ask your agent about their experience, including education, insurance training, professional affiliations and professional designations earned. For example, some insurance brokers may also be financial planners, so they may hold the Chartered Financial Consultant, ChFC, or Registered Financial Planner, RFP, designation.

Choosing an insurance company

Each insurance company is different. Each company is rated by four independent agencies, including A.M. Best, Moody’s, Fitch and Standard & Poor’s for their financial strength and stability. In addition, each insurance company has its own actuarial tables, underwriting standards, policy provisions, and premium and deductible options.

When selecting a company, we suggest you consider these criteria:

The company’s ratings from two or three of the four independent agencies named above. We suggest you go directly to the agency websites for the most objective and current data. See links above.
Insurance companies and agents are regulated at the state level. Visit the insurance commissioner’s website for your state to ensure that the insurance agent and company you are considering are licensed in your state and to see if there are any complaints filed against them. The National Association of Insurance Commissioners (NAIC) has links to the states’ insurance commissioner websites.
You might also search for online reviews of particular companies to learn from the experience of others, but read the reviews with a healthy dose of skepticism because you can’t believe everything you read on the Internet.
Learn what you can about a company’s claims-paying ability. You may be able to get information from an agent, online or directly from the company about how quickly they pay claims as well as what percentage of claims are paid. For example, Esurance boasts that it takes 10 days or less to settle most vehicle claims.

Coverage amounts and premiums

Because business insurance is such a broad category, it is hard to offer guidance for what coverage amounts your subscription company needs or what the premiums might be. You can get a general idea by getting a quote online or by contacting an insurance broker who represents multiple carriers. Insureon.com, for example, represents six different insurance companies, so you can get quotes from different carriers.

Typically speaking, however, an appropriate coverage amount will cover the potential risk involved, and premiums will be based on the coverage amount and a variety of risk factors. The higher the deductible, the lower the premium, so keep your company’s financial risk and budget in mind when selecting an appropriate deductible.

Premiums are typically paid annually, but many companies offer different payment schedules, including semiannual, quarterly and monthly payment options, but premiums not paid annually may include service fees or require automatic deduction from your business bank account prior to approval of the payment schedule.

Each insurer will have their own requirements, so be sure that you and your financial and legal teams understand each policy along with its payment terms and coverage provisions before you sign on the dotted line.

Recommendations

Shop around and compare. Before purchasing any insurance policy, shop around, compare options and choose the best coverage for your budget. This includes selecting a reliable insurance carrier with a policy that meets your subscription company’s needs.
Understand your policy and your responsibilities. Once you’ve selected a policy and a carrier, be sure that you understand the coverages and provisions of the policy before you commit yourself. All policies are not the same, and while some standard provisions will be common across the industry, it is important you that understand what YOUR policy covers, what it doesn’t cover and what your responsibility as the insured is.
Keep good records. InsuranceUOnline.org suggests business owners keep thorough, up-to-date records of business inventory, accounts receivable and equipment purchases. One copy should be maintained on-site, and a second copy should be stored in a different location.
Reassess your risk regularly. The Small Business Administration recommends that you review your business insurance needs annually, because as your business grows, your risk often does too. If there are any material changes to your business such as the move to a new location or the purchase of equipment, contact your agent or insurance carrier to see if this has an impact on your policies.
Consider a Business Owner’s Policy (BOP). As we explained in part 1 of this series, business owners can buy a BOP, a combination of business insurance coverages. A BOP typically covers property, general liability, vehicles and business interruption. A BOP may not cover all of your subscription company’s needs, however, but combining several coverages into one policy may be less expensive than having multiple policies from different insurance carriers. Consult with your agent to choose which covers you need and how to best package them.