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can bigger insurance brokerages negotiate better rates than smaller ones?

can bigger insurance brokerages negotiate better rates than smaller ones?

At benchmark commercial insurance, we often get asked whether or not it’s better to work with a small brokerage or a large brokerage. While there are pros and cons to both, the pricing must remain the same from carriers. Hear from Benchmark’s own Peter Katkov, as he explains:

“I’m often asked the question, does the size of the agency impact the pricing of coverage received by a carrier? And the simple answer is no. There’s actually legislation that prohibits discriminatory pricing based on the size of the agency

So, based on identical underwriting information and for the same coverage, the quote provided to the small agency or to the biggest in the world must be identical. Obviously, there are pros and cons in being in both of those service environments, so you have to ask yourself as the client, if the policy on the shelf is the same and costs the same, under which environment are my needs as a client best being met?”

Let’s dive a little deeper. 

The Pros and Cons of Small Insurance Brokerages

Pros

If you’re looking for an insurance brokerage that understands your community and your business’s unique needs, then a smaller brokerage might be a better choice. Typically smaller brokerages are hiring local agents who will understand the property and area on a deeper level than a national agent. 

Another factor to consider when deciding between a small or large brokerage is how accessible their agents are to their clients. If you’re experiencing an emergency, you want a quick response from your broker about how to handle the situation. Generally, smaller brokerages have actual people on the other line, helping you navigate the next steps while creating a trusting relationship.  

Small agencies likely have lower employee turnover, so the team you are working with is unlikely to change with the breeze.

As you look for a brokerage that can meet your needs, oftentimes larger insurance brokerages are unable to work with people or businesses with low credit, a history of claims, or are below premium thresholds. This is where smaller insurance brokerages could be a better fit. 

Cons

With a smaller brokerage, there may be some challenges with the number of national resources available. With a smaller brokerage, there exists a risk they may not be in business in the long run as compared to larger, more stable firms. This may put your own financial situation at risk if you need to find a new brokerage. 

However, with a small brokerage, you’re more likely to have the personal contact of your broker, who knows everything about your insurance. This can lead to a more seamless customer service experience overall. 

The Pros and Cons of Large Insurance Brokerages

Pros

A large insurance brokerage is going to have a more consistent income from more team members and clients, which means that they are financially anchored. 

One of the largest pros to working with a larger insurance brokerage is technology and innovation. Larger brokerages are able to create apps to assist your business or personal insurance needs with ease. Whether that means making a claim or investing in new insurance policies.

Another advantage to a large brokerage is the customer service chat portals typically run 24/7. This is great for quick questions or emergency situations. There are multiple tools for quick access to information including apps, website chats, phone lines, and your typical email communication. 

Cons

There is a missing piece to the puzzle when it comes to large brokers. The personal touch. With a larger client base, things blend together between clients and brokers and may become hard to keep track of. Employee turnover leads to an ever-changing Rolodex of different contacts for each service need.

In the case of an emergency, you might find yourself endlessly chatting with a bot on the website chat line, compared to calling your personal broker who already knows your situation and doesn’t need a time-consuming update. 

Most importantly, however, is what motivates the decision-making of a large multi-national brokerage.  Publicly traded companies’ number one responsibility is to their shareholders, not their clients.

Insurance Carrier Pricing Requirements

As Peter mentioned above, there are laws and regulations that forbid discriminatory pricing based on the size of the agency.

According to the Federal Trade Commission:

A seller charging competing buyers different prices for the same “commodity” or discriminating in the provision of “allowances” — compensation for advertising and other services — may be violating the Robinson-Patman Act. This kind of price discrimination may give favored customers an edge in the market that has nothing to do with their superior efficiency. Price discriminations are generally lawful, particularly if they reflect the different costs of dealing with different buyers or are the result of a seller’s attempts to meet a competitor’s offering.”

In the insurance industry, pricing discrimination is considered ‘unlawful’,’ therefore small brokerages and large brokerages receive the same rates from carriers. 

What type of insurance brokerage is right for me?

At the end of the day, choosing your brokerage is largely impacted by your specific business needs. But here are some of the factors to consider when choosing a partner. 

Small

A small brokerage will be a good fit for you if you value the personal touch. This also could be the right option geographically, where there are specific exclusions or conditions to consider based on your location. Depending on your financial and claims history, a large brokerage might not consider you as an eligible client. 

Large

However, if your situation requires a lot of contact outside the normal work hours, then the 24/7 hotlines that most large brokerage firms have will be a needed resource to consider. There is also more adaptability due to the higher capital and amount of brokers that are working with a large firm.

Unsure about what you should be paying to insure your business? Check out this article explaining the different factors that contribute to the coverage costs of business insurance. 

“I’m often asked the question, does the size of the agency impact the pricing of coverage received by a carrier? And the simple answer is no. There’s actually legislation that prohibits discriminatory pricing based on the size of the agency.

So, based on identical underwriting information and for the same coverage, the quote provided to the small agency or to the biggest in the world must be identical. Obviously, there are pros and cons in being in both of those service environments, so you have to ask yourself as the client, if the policy on the shelf is the same and costs the same, under which environment are my needs as a client best being met?”

Let’s dive a little deeper. 

The Pros and Cons of Small Insurance Brokerages

Pros

If you’re looking for an insurance brokerage that understands your community and your business’s unique needs, then a smaller brokerage might be a better choice. Typically smaller brokerages are hiring local agents who will understand the property and area on a deeper level than a national agent. 

Another factor to consider when deciding between a small or large brokerage is how accessible their agents are to their clients. If you’re experiencing an emergency, you want a quick response from your broker about how to handle the situation. Generally, smaller brokerages have actual people on the other line, helping you navigate the next steps while creating a trusting relationship.  

Small agencies likely have lower employee turnover, so the team you are working with is unlikely to change with the breeze.

As you look for a brokerage that can meet your needs, oftentimes larger insurance brokerages are unable to work with people or businesses with low credit, a history of claims, or are below premium thresholds. This is where smaller insurance brokerages could be a better fit. 

Cons

With a smaller brokerage, there may be some challenges with the number of national resources available. With a smaller brokerage, there exists a risk they may not be in business in the long run as compared to larger, more stable firms. This may put your own financial situation at risk if you need to find a new brokerage. 

 

However, with a small brokerage, you’re more likely to have the personal contact of your broker, who knows everything about your insurance. This can lead to a more seamless customer service experience overall. 

The Pros and Cons of Large Insurance Brokerages

Pros

A large insurance brokerage is going to have a more consistent income from more team members and clients, which means that they are financially anchored. 

 

One of the largest pros to working with a larger insurance brokerage is technology and innovation. Larger brokerages are able to create apps to assist your business or personal insurance needs with ease. Whether that means making a claim, or investing in new insurance policies.

 

Another advantage to a large brokerage is the customer service chat portals typically run 24/7. This is great for quick questions or emergency situations. There are multiple tools for quick access to information including apps, website chats, phone lines and your typical email communication. 

Cons

There is a missing piece to the puzzle when it comes to large brokers. The personal touch. With a larger client base, things blend together between clients and brokers and may become hard to keep track of. Employee turnover leads to an ever-changing rolodex of different contacts for each service need.

 

In the case of an emergency, you might find yourself endlessly chatting with a bot on the website chat line, compared to calling your personal broker who already knows your situation and doesn’t need a time-consuming update. 

 

Most importantly however, is what motivates the decision making of a large multi-national brokerage.  Publicly traded companies’ number one responsibility is to their shareholders, not their clients.

 

Insurance Carrier Pricing Requirements

As Peter mentioned above, there are laws and regulations that forbid discriminatory pricing based on the size of the agency.

 

According to the Federal Trade Commission:

 

A seller charging competing buyers different prices for the same “commodity” or discriminating in the provision of “allowances” — compensation for advertising and other services — may be violating the Robinson-Patman Act. This kind of price discrimination may give favored customers an edge in the market that has nothing to do with their superior efficiency. Price discriminations are generally lawful, particularly if they reflect the different costs of dealing with different buyers or are the result of a seller’s attempts to meet a competitor’s offering.”

 

In the insurance industry, pricing discrimination is considered ‘unlawful’,’ therefore small brokerages and large brokerages receive the same rates from carriers. 

What type of insurance brokerage is right for me?

At the end of the day, choosing your brokerage is largely impacted by your specific business needs. But here are some of the factors to consider when choosing a partner. 

Small

A small brokerage will be a good fit for you if you value the personal touch. This also could be the right option geographically, where there are specific exclusions or conditions to consider based on your location. Depending on your financial and claims history, a large brokerage might not consider you as an eligible client. 

Large

However, if your situation requires a lot of contact outside the normal work hours, then the 24/7 hotlines that most large brokerage firms have will be a needed resource to consider. There is also more adaptability due to the higher capital and amount of brokers that are working with a large firm.

Unsure about what you should be paying to insure your business? Check out this article explaining the different factors that contribute to the coverage costs of business insurance. 

Tax Codes

changes in tax codes – what you need to know

Tax changes are coming. 

Have you prepared for the changes that may begin at the end of the year? If you haven’t started thinking about it already, it’s about that time.

Here are a few of the proposed changes that are looking to go into effect starting next year. 

Income Tax Changes

 

Your tax liability might be at risk to change, although it all depends on your current financial situation. Some of the main changes will affect your bottom line. For example, if your income exceeds $400,000, then you are likely to be impacted.

Along with higher tax rates, itemized deductions will also be prevalent in tax code changes. The proposed changes include a $10,000 limit on local and state taxes. 

Carried Interest Tax Changes

The last time carried interest tax changes were drastically changed was in 2017. It looks like there will be more change coming. Some lawmakers introduced the “Carried Interest Fairness Act of 2021” which if passed, would “tax carried interest at ordinary income tax rates and treat it as wages subject to employment taxes.” 

Capital Gains Tax Changes

The proposed changes would increase the applicable tax to a higher marginal income rate. This would conclude with the total being 43.4% on long-term capital gains. 

Estate & Gift Tax Changes

President Biden has proposed that the current Estate & Tax Changes that are meant to extend until 2026 be looked at closely. 

How to know if these tax changes will affect you?

If you are a business owner or individual whose income is above $400,000 then odds are you will be affected by these tax changes. 

Increased tax rates will mean it’s hard to know how much you’re paying to insure your business. Learn what the general costs are for your business.  READ ON… 

orange umbrella above regular black ones

how much should I pay to insure my business?

With insurance costs rising, you may be looking at your insurance costs wondering how much you should really be paying in insurance. This largely depends on your industry and the risks associated with your particular business, however, there are some standards that help give you a rough estimate!

Typically business owners spend between 1-3% of their revenue on insurance coverage. A lower-risk business might be closer to the 1% range, whereas a higher-risk business would be around 3%.  The highest-risk businesses can invest as much as 5% of their annual revenue in insurance coverage to offset the possibility of catastrophic losses.

The risk factors that contribute to higher insurance costs include: 

Your Industry

Each industry has an inherent level of risk associated with it. These different levels of risk play a large role in defining your costs. The details of how you run your business can also affect your business insurance costs. If you’re a restaurant allowing your customers to cook their own food (think Korean BBQ), you may have more risk than a typical restaurant owner.

Your Expertise

Insurance carriers view business owners with more experience as being in a lower-risk category. Typically you’ll be asked how many years you’ve been in business, what level of education you have, and what your employee’s qualifications are. More highly educated workforces are likely to be assumed to be lower-risk to an actuary at a carrier. 

Your Revenue

Growing your business can cause your insurance costs to grow. Higher revenue leads to more customers, more square footage, and more employees, which, in turn, increases your risk. In addition to the workers’ compensation costs that would of course increase, operational complexity adds to risk, the more hands, the greater the risk of someone getting hurt or something going wrong.  

Your Business Location

Where you work plays a large role in your insurance premiums. The more square footage you have, the physical condition of your building, and the physical location of your business (flood zones, high crime rate, fault lines, etc.) lead to higher costs and an assessment of being a higher-risk company. 

One recent factor that has been raising the costs to insure businesses is changing fire zones. If your business is located in a high-risk fire area, then your insurance is going to be more expensive.  As climate change increases the areas considered high-risk fire zones, many businesses that did not have this increased rate adjustment are seeing their costs rise.  This is true for any external impact (flood zones, high crime rate, fault lines), with the higher risk there will be higher costs for your business. 

Your Employees

The number of employees you have may lead to higher insurance premiums. With more employees, you may need to invest in various different types of insurance, like Workers Compensation, Errors and Omissions, and General Liability. Your insurance premiums can also depend on the positions of your employees. Qualified ALEs will necessarily have different requirements, risks, and costs than Small Business Owners. 

Your Chosen Policy

The more policies you add, the higher your premiums. The nature of your business may determine which policies you need to invest in, other times it can be up to you. AS you assess what coverage you need be aware of what a catastrophic loss would do to your business, your personal finances, and your company’s ability to operate.  Cyber coverage was often overlooked before the recent wave of ransomware attacks, now, business owners are actively looking at their data vulnerabilities. 

Your Prior Claims history

Lastly, your claims history has a large impact on your insurance premiums. If your company has a long history of filing claims for loss or damage, insurance companies will charge higher premiums to cover the risk of insuring your business. If you are looking for ways to reduce your premiums, there are risk-reducing operational steps you can put in place. 

Has your insurance increased this year? Learn why with Benchmark’s Rob Cohen.  READ MORE HERE

Surface Water and Property Insurance

surface water & property insurance

It’s that time of year again where the rain starts to fall, and flooding and other rain-related issues arise that businesses typically don’t have to deal with during the rest of the sunshine-filled year— at least in California.

As a business owner, it’s important to understand how your coverage will protect you during various seasons of your business. First and foremost, did you know that Property Insurance has a surface water exclusion? What does this mean for your business?

What is Surface Water? 

Surface water is also known as flooding but doesn’t always mean a full-blown flood. In this case, surface water is defined as spring thaw, flash floods, excessive rain, storm drain overflow.

Additionally, surface water is any water that runs through or travels over land where it’s not supposed to be located. It’s typically determined as any damage that has occurred by water that filtered through man-made objects, instead of from the ground

Why is there an Exclusion?

Investopedia outlines some of the main reasons behind the exclusion, “The reasoning is that only specific areas are prone to water-related natural disaster events, such as floods, tidal waves, or tsunamis.” The insurance industry wants to make sure policyholders with these specific water-related exposures purchase specific Flood policies that can address these loss conditions.

Surface Water Insurance

The Standard Flood Insurance Policy (SFIP) Forms contain complete definitions of the coverage they provide. Direct physical losses caused by “floods” are covered. Also covered are losses resulting from flood-related erosion caused by waves or currents of water activity exceeding anticipated cyclical levels, or caused by a severe storm, flash flood, abnormal tidal surge, which result in flooding, as defined. However, damage caused by mudslides as specifically defined in the policy forms is covered under “Catastrophe Coverage.”  

An Example

In 2012 there was a court case titled, “Union Street Furniture v. Peerless Indemnity Insurance Company,” where the definition of surface water cost Union Street Furniture and Carpet lost substantial amounts of money. 

In this case, there was a large storm that funneled rainwater from the parking lot into their commercial building causing water damage. The case claimed that the water damage was not covered by their insurance policy because the water was deemed to be caused by surface water or flooding. 

Do you need it? 

Take the above example as a learning opportunity. Reach out to your insurance broker to see if it may be a good idea to start investing in a Surface Water Insurance policy. Let your broker know if the topography of your location(s) lend themselves to water damage that fits the definition of “Surface Water”.

Of course, it depends on your specific business situation. If you’re concerned about flood damage specifically, then buying separate flood coverage might be necessary. Flood insurance coverage is available for both commercial and residential properties. With the rainy season approaching in Southern California, there are unpredictable factors that may not be included in your General Liability coverage. 

As a business owner, you have or will need to file some kind of insurance claim. Understanding what that means is essential to your success. Read more about commercial insurance claims, and what you need to know here

Do You Need an Employee Manual Review? (Yes!)

do you need an employee manual review? (yes!)

What Is an Employee Manual Review?

An employee manual is not only a resource for employees but also for an employer as well. An employee manual is a book or online PDF containing employees’ and employers’ guidelines to reference for all job-related information.

Although an employee handbook is given and reviewed once a new hire is onboarded, the document should be reviewed at least annually. 

This is generally a large document, as it will cover topics including: 

  • Equal Opportunity Guidelines
  • Company Culture
  • Paid Time Off (PTO) and Holiday Time
  • Job Expectations
  • A Company Mission Statement
  • Company Policies
  • Work Performance Expectations
  • Who to Contact if an Issue Arises

Surprisingly, employee handbooks are not required by law. They are, however, very helpful and highly recommended.

Most HR representatives consider the employer’s handbook as an active document. This means that throughout the year when policies and employment laws change, notes can be added and reviewed.

It is important to note that creating and maintaining employee manuals within California is much more difficult than in other states as policies and guidelines are constantly being adjusted. It’s almost impossible to keep up, which is why adding notes and using the employee handbook as an active document is a helpful practice to follow.

Why Review?

Most HR representatives consider the employer’s handbook as an active document. This means that throughout the year when policies and general guidelines change, notes can be added and reviewed. Again, an employee handbook is most helpful when acting as an active document because the handbook will stay perfectly to date without annual revisions. 

As an employer, it can be helpful to see the employee handbook as a resource, not just another box to check off the list. It can be a helpful tool because there is a high level of information to keep track of. If an employee gets called to jury duty, for example, do they receive paid time off? Check the employee handbook.

What to Avoid

If you have an employee handbook from a past business, don’t copy and paste this document for another business. This doesn’t work for many reasons. Each company has a unique set of guidelines that apply to its employee handbook.

Ideally, an employee handbook should be written by an HR consultant or professional, or an employment attorney. Although there are tools that can help employers build a handbook, it’s more consistent to collaborate with a professional. 

As a new hire is onboarded, there are many documents that can get lost in emails. One suggestion as an employer is to review the handbook in-person—open it and highlight some of the main topics. Consider creating an infographic with the top 10 ideas and questions that employees might have as a reference.

Do you have questions about our program development and options available? Our team is ready to answer your questions and provide you with information about insurance and building a beneficial partnership with us. Call Benchmark today at 800-283-0622 or send us a message.

Thursday August 19 2021