A common question for hotel and restaurant operators is: How do I get insurance that effectively covers my operation for the lowest price available? While insurance is a complex topic with many intricate layers, the answer to this specific question is fairly simple – control the process.
When you ask for a certain grade of steak or a set of linens with a defined thread count or a specific piece of equipment, you can compare ‘apples to apples’ and make a decision based on price, delivery, installation and so on. But insurance does not work this way.
Why not? Well, the ‘playing field’ is hardly level. Typically, you do not have the knowledge that your ‘vendor’ is bringing to the table. Do you know how to read a ‘quote’ when the various ISO forms are listed as part of the policy? Do you even know what an ISO form is? Be honest with yourself; understanding insurance is not for the faint of heart.
You’ll often start the process by asking three insurance agents or brokers to give you a quote (I use agent/broker interchangeably because, for all intents and purposes, they are the same for your purposes). What do you give the agent to get you this quote? Is it a copy of the current policy or the last ‘proposal’ that you purchased? Most agents will jump at the chance to work with this limited information and run to the insurance marketplace with your account to see what is available.
And why would they jump at this opportunity? As insane as it sounds, any agent with an application can submit your account for a quote – whether you sanctioned it or not, whether the details are correct or not and whether the submission is complete or not. Once the insurance company receives the submission from an agent, that insurance company is precluded from offering a proposal to any other agent.
Yes, you read that correct. This is called ‘blocking the market’ and it makes sure the agent submitting your account ‘locks up’ the insurance companies with his or her submission. It doesn’t matter if the submission is accurate or complete; you are simply tied to that agent for the bidding process. Some agents have no problem rushing to the marketplace to ‘block’ the insurance companies. This isn’t necessarily good for you, but incentivizes the agent.
Your main recourse to prevent any trauma is to control the process.
Create detailed bid specifications that are in underwriting terms – insurance speak – and are applicable to any insurance company. This means a ‘statement of values’ reflecting all of the data needed to understand the buildings to be insured, the revenue streams to be insured and the employees to be insured. Many insurance companies require not only the standard ‘Acord forms’ but also detailed supplemental applications. You can and should have a very detailed supplemental application already completed that answers every question an underwriter can think to ask before they ask it.
To help with your understanding and the development of these bid specifications, there are three legs to the stool of insurance that you should know. First, what is the exposure? That is answered by the generic Acord forms and the supplemental that answers every question an underwriter can ask. Second, what are you paying for the insurance now, in details by line of coverage? Not sharing the current cost is detrimental to the effort. What you are paying now is combined with the third leg, which pertains to what has been paid out on your behalf in terms of claims?
If you can explain how your account can be profitable to the insurance underwriters, you can get the best deal because you can show the underwriter how much the insurance company will be able to charge, the exposure they are insuring, and the ‘payout’ from prior insurance companies for the same risk.
Remove one leg from the stool and it wobbles. Too many buyers think they are able to get a better deal by not sharing all three legs of critical information. They won’t share the current premiums; they have no idea of the true exposure; or they cannot provide hard copy results of the losses paid out on the account (called ‘loss runs’). In this sense, controlling the process means arming yourself with as much information as is possible.
Lastly, think about broker selection as a concept. Create an RFP for your insurance needs. Ask agents to review your three legs and provide the approach they will take to soliciting your account to the insurance marketplace. Interview as many as you wish, just make sure you clarify what you want in the RFP. Only then should you pick the best one based upon your internal criteria, and let that particular agent run the marketplace.
When I am in control of an account, I have the luxury of bidding to the insurance world, knowing that I control who gets the final order based on your criteria and my relationships. The analogy is the hiring of a real estate agent to sell your home. They control the process and get you the price you desire based on what you have to sell and what you want. Make the process simple so that you can control it and so you can get the best deal possible.
About the author
Tom Cleary is an Equity Partner with the Sihle Insurance Group in Clearwater Florida and a member of Cayuga Hospitality Consultants. Based in Florida for his entire career, Tom has expertise in commercial insurance with a focus on hospitality and real estate as well as flood and wind exposures. Products offered include property, liability, automobile, crime, umbrella and workers’ compensation throughout the United States and the Caribbean. Tom also serves as a regional director for The Cornell Society, has been a board member and longtime member of the Florida Restaurant and Lodging Association, and serves in an advisory capacity to the Resort Hotel Association.
