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Shopping for Small Business Insurance

Insurance can be a complicated subject to explore, and getting the right coverage – at the right price – is important for small business owners. Therefore, it makes sense to enlist professional support when you’re shopping for insurance policies to meet your company’s risk management and financial protection needs.

The right insurance agent or broker will be able to help your company in a variety of ways beyond merely placing insurance coverage. A good agent will understand your company's and industry's risks, and will provide valuable risk management advice to help your company reduce the potential for accidents or losses. Your agent can also help you plan ways to reduce the severity of any losses that do occur.

In addition, a good agent can serve as an advocate if you need to file a claim, potentially speeding the claims resolution process or clearing any misunderstandings you may have with the insurer's claims adjusters.

Changes in financial services industry regulation have blurred the lines between insurance and banking, with a growing number of banks offering insurance products and services as well. If you have a strong relationship with your bank, exploring their insurance offerings may help you obtain favorable pricing or fee reductions across your financial portfolio.

Although online shopping has made inroads with basic consumer insurance products, your small business likely has specialized coverage needs that will be addressed more efficiently (and cost-effectively) by dealing with a dedicated agent or broker.

Choosing an Agent

It’s a good idea to start by talking to the professionals who are already serving your company to get their opinions about your company’s insurance program. For example, your banker or financial advisor will likely understand how to integrate insurance coverage into your company’s overall financial portfolio, and to help you protect your business (and personal) assets effectively.

These advisors may also be able to recommend insurance professionals, and provide advice about which companies are likely to be more expensive or easier to work with. For example, an attorney with litigation experience may know whether insurance carriers tend to settle claims quickly or to dispute them aggressively, which can be helpful to understand as you’re shopping for coverage.

Agent or Broker?

If you decide to work with an insurance agent or broker, the first consideration is understanding the differences between the two. For example, insurance agents fall into two broad camps – independent agents, who represent a variety of insurance companies, and direct writers, who are affiliated with specific carriers.

Independent agents say because they can shop for coverage among a variety of carriers, they’re a better option for business owners shopping for insurance. That’s a valid point, but it’s not automatically true. Direct writers, for instance, may be able to obtain better rates, or may be able to place specialized coverage or difficult-to-insure risks.

In either case, insurance agents are representatives of carriers, and their duty to their customers is primarily administrative – communicating with the customer and the carrier, and making sure paperwork and payments flow smoothly between the two.

An insurance broker, by comparison, represents the customer and has stricter state licensing requirements than an insurance agent. A broker officially represents your company, and will generally offer a broader range of insurance and risk management services than an agent.

If your business has simple requirements, you may be better served with an agent than a broker. But because your company’s situation is unique, it’s important to talk to more than one professional to best understand your options.

As you’re evaluating insurance professionals, it’s also a good idea to contact your state’s insurance commission to verify their licenses and to see if any complaints have been filed against them.

Similarly, if your banker, agent or broker is recommending an insurance carrier, be sure to ask about the carrier's financial condition. The health and claims-paying ability of insurance companies is rated by several companies to help customers make sure they’re buying coverage from sound and reputable insurers.

Another important point to remember is that price is not the only consideration in choosing an insurance policy. Insurance pricing ebbs and flows and often reflects conditions in the broader investment markets - insurance companies getting favorable investment returns often reduce premiums to maintain market share. But when investment conditions are unfavorable, carriers typically increase premiums and tighten underwriting standards, making coverage tougher (and more expensive) to arrange.

The right insurance professional can be a valuable resource who plays an important role in protecting the financial and risk management health of your company, so it is important to invest time in researching this relationship before you purchase insurance.