Finally Understand Your Commercial Insurance Policy

Navigating an insurance policy can be a daunting thing. You just received your policy from your agent and you would really like to know what it says on that 50 to 100 pages of text and form.

I can explain how a policy is structured. I won’t go into specifics about the coverages in this article, but you will at least have a roadmap as to where the various parts are, and what they try to do. And since I specialize in commercial insurance, and those are complex, I will concentrate on commercial.


Lately it seems that the disclosure section of a policy comes before the informational section. Many policies are using 20 to 40 pages of disclosures. Information on Terrorism coverage, Flood coverage, employee characterization, coverage changes from prior year, and updates to coverage. How to file claims may also be stated in those pages. This information used to be disclosed at the back of the policy, and you could get straight to the meat of your coverages. In any case, you may find that those pages come first.

Declaration Pages

The summary of your coverage amounts, dates of your coverage, who is insuring you, and the cost of insurance, is next. This page or pages are what are termed “Declaration Pages,” and are actually required by law. They disclose to you what you are paying for when you buy a policy.

Another section of the Declarations page has a list of the forms and endorsements to the policy. More on this later. In all, these pages can be from 1 to 10 or more in number, depending on how much detail is in them. Coverages can be broken down by type and location. You will often see the rating base of the policy.

Rating Base

To digress just a bit, the rating base of a policy is how the premium was achieved. There may be a rate for area, gross sales, property amount, payroll, or other rating bases depending on what type of business is being insured. The rate used is multiplied against the rating base, or amount, in order to get the premium for that portion of the total premium.

Classification Number

Along with the rating base is a classification number, not always shown in the declarations page. This number is critical, as it defines which rate is to be used. Mathematicians, who are called actuaries, use statistics from past losses for each type of business, to determine the possibility of future losses. They also take into account other factors, such as their tolerance for risk, or how much they can realistically charge for a classification, as well as what they think the future may hold in terms of marketplace, weather in the case of Flood coverage, and so on.

The insurance companies then use the actuarial information and assign their own rate to the classification number. Then they have to file that rate with the insurance department. And if the insurance department disagrees, they can disallow that rate from being used.

In any case, the classification may be on display for you to see how the insurance company arrived at your rate.

Double Check Your Premium

If you see a rate that doesn’t calculate out correctly, it could be that despite the premium coming out at one amount, you are being charged a higher rate, it could be that you are subject to a “minimum premium.” This is the lowest premium for which the insurance company will sell the policy, despite the rating factors.

And by the way, this is one of the reasons that we shop insurance coverage; one company may have a greater tolerance for your type of business’s risk factors than another, and we could get a lower premium.

Insurance Forms

So back on track: next come the insurance forms with standardized wording. Some insurance companies use wording standardized by the Insurance Services Office (ISO.) technically speaking, the ISO provides statistical, actuarial, underwriting, and claims information and analytics; compliance and fraud identification tools; policy language; information about specific locations; and technical services.

The language used should be plain, understandable English. That does not mean that it may not need some interpretation. And some parts refer back to earlier parts. It reminds me of a French cookbook I once used. I was ready to prepare a dish on page 253, when it told me to use the beef stock described on page 40, which they assumed I had prepared earlier and had sitting around.

ISO wording is used by most insurance companies, and if you see their designation at the bottom of a form, you know it has been standardized. This is a good thing, because when you compare coverages from different companies, if they are using ISO forms, you are comparing apples to apples. On the other hand, if an insurance company uses its own wording, you may not know what is included or excluded, as you can’t compare it to standard. This is called “manuscripted wording” and there are many companies who do use it. It is not necessarily a bad thing, but you have to select your insurance company carefully.

Property Forms

Usually the property forms come first after the declaration pages. Sometimes they are preceded by a rating page. The property form will define the types of property covered, how thoroughly it is covered, where it is covered, under what perils it is covered, and under what conditions. Exclusions are also noted in this section, and should be examined, so you know what is not covered. Included is a section on how losses are paid.

After the property section, you will see a number of endorsements. These either enhance the standard wording, or are exclusion wording that clarifies what is not covered. These types of endorsements are often purchased to enhance coverage, or you can purchase deletion of the exclusion.



General Liability

The section on commercial general liability usually comes after property. Liability protects you from lawsuit in the event that you hurt someone’s body or property. It also defines the personal injury which may be covered; libel slander, false arrest, false imprisonment, wrongful eviction, and the like.

There is a section on who is an insured; the insured, family, employees, and so on.

Just as in property coverage, the liability section may be preceded by a rating page, and after the forms, there are endorsements which can either enhance or limit coverage under certain conditions. Again, in some cases you can pay to buy enhancements or to make limitations go away.

You may ask why there are endorsements. Good question. A standard policy form is a basic wording that may be used for many different types of businesses, anything from apartment buildings to plumbing contractors. Each of these businesses has different needs and ways of operating, and the endorsements tailor the basic wording to specific businesses so that you don’t need a different form for each type of wording.

So that’s it. Most commercial policies are structured this way, and now that you have this information, you know what specifics to ask your insurance agent about your coverage

Is Workers Compensation coverage too expensive?

I have a recent prospect who keeps dragging his feet with regard to providing information for a workers compensation quote.

I hear from a different source that he is afraid of the potential costs. Let’s explore.

First, what happens if he continues to put off getting workers compensation coverage? Suppose there is a claim. Small chance of that, you say? With a workers compensation policy also comes instruction on how to avoid claims and losses. If he is operating without coverage, he is more likely to have a claim. If that happens, his business is personally liable for any worker injuries.

Employees often get hurt while not on the job, wanting to collect for their injuries and time off; so they file a claim. They don’t know that there is no workers compensation coverage in place.

Alternately, they could be on an errand for the company and get into an accident in their vehicle. In either case, not only is the business owner liable for any claims payment, but also for attorney fees. Not cheap.

Then there is the law. It says that you can be fined up to $1000 per day per employee for each uninsured day. If a claim does get filed, they will be exposed as being non-compliant with the law.

And lastly, new companies often get charged a slightly higher rate, just because the owners are not experienced enough to avoid them. Companies who have been operating without coverage usually get surcharged an even higher rate as a type of punishment for non-compliance.

So, is workers compensation coverage too expensive? It depends. Would you like to roll the dice?

Please call us to discuss the options. 888-885-3388

The Case of The Three-Fingered Man

No, it’s not a mystery. It is a workers compensation scenario. And yes, it is extreme, but it happened, and other such incidents do happen.

A client of mine had a machine shop with large presses which stamp down on pieces of metal in order to form them. According to standards, such machines are to have a number of safeguards. There must be a yellow line around the machine, within which only the operator is allowed to stand while working the machine. This is to prevent distractions.

Another safeguard is the placement of handholds out of the way of the machinery’s working components, so that the machine will only operate when your hands are clear of the press. If you are a machine operator in a hurry to produce your parts, you may be tempted to circumvent that safeguard. If that happens, your hands may still be in the way when the press comes down. This resulted in a three-fingered operator, and a workers compensation claim.

We have seen claims all the way from this extreme to one as simple as an employee throwing out her back while reaching for a fallen paper clip. Anyone can have an accident at work at any time, and there are a myriad of ways that can happen. It is important to protect your business with workers compensation coverage so that your business does not bear the responsibility of paying the price for your employee’s injury.

Have questions? Give us a call at 888-885-3388.

How Shall I Insure My Business Vehicle?

There is more than one way to insure a business vehicle. Your personal lines insurance agent may have a program whereby a vehicle can be insured on a personal lines policy. This may work fine for a salesman who goes to see clients in his personal vehicle. His policy will be rated for business use and covered for such usage. Beware of using your personal vehicle for sales calls and not advising your insurer that you are doing that, as your policy may specifically exclude such use unless endorsed for business. you don’t want any rude surprises in case of an accident.

Your insurer may also allow you to place coverage for a service vehicle on a personal lines policy. An example of this might be a contractor who operates as an individual. He may be able to insure his truck for being at one or two jobs per day.

Make sure that if you are driving for work, that you have adequate insurance coverage. $30,000/$60,000 will not do if you are in business. An accident in your truck will likely exceed that limit. Get the highest limits you can.

If you are a company (LLC or Corporation,) and your company registers the vehicle, you can have many advantages. Here are some:

  • You can obtain $1,000,000 of liability coverage for about as cheaply as you can get personal insurance
  • You can be insured for towing a commercial trailer—one that carries a piece of commercial equipment, for example.
  • You can insure your employees for the incidental use of their own vehicle while on company business or company time (even running to the store for stamps or to get lunch for the crew,) in case your company gets sued for their accident.
  • You can get broader coverage for an incidentally operated commercial vehicle.

If you are in business, the best protection for you is to operate under an entity such as an LLC or a corporation, and insure your vehicles under that entity.

If you have questions, give us a call. 888-885-3388

Trying to save money by insuring for less? Beware of the Coinsurance Clause.

If you have $100,000 of inventory and fixtures, but you want to save a few dollars on the insurance, you may be tempted to insure, say, $25,000 of it and call it a day. The chances are slim that you would lose it all in one incident, right? My example comes from a true story, and I hope it motivates you to always “insure to value,” and review annually.

I had a client who insured his office for $25,000 of contents—property, and fixtures installed by him. Every year, I would ask him if the coverage was correct, and he would assure me that it was. One night, on a New Year’s eve, as it turned out, he had a burglary, where all of his expensive fixtures were stolen. The total loss was about $40,000. So, did he receive the full $25,000 for which he was covered? No, he did not.

The assumption with insurance is that an insured will insure to value. If you have $100,000, you insure that much, otherwise, you only get partial coverage.

As it turned out, he should have been insuring for about $75,000. He insured for one third of value, and since property coverages have a coinsurance clause, he got less. Here is how it works: you insure for one third, so at the time of loss, you only get one third of your loss, even if you have more coverage than that. In my client’s case, he received $40,000, less deductible divided by one third; about $13,166, on his $40,000 loss.

The moral is to insure to value. And don’t depend on your insurance agent to read your mind. You must inform your agent of any changes to operations, management, inventory, fixtures or anticipated receipts and payroll. Do it when you have the changes, so you won’t forget………better yet, do it before it happens so your agent can anticipate any possible repercussions.

Have questions? Give us a call. 818-773-8849

What kind of company insures you

Here in California, we have two types of insurance companies. Admitted and non-admitted.

Admitted companies are backed by a safety net called the State Guarantee Fund, which would pay for any unpaid claims if the company becomes insolvent. Interestingly, these are generally very large companies with lots of assets, and can afford the costs involved with being admitted in California.

The surplus market utilizes mostly non-admitted insurance companies. They are not backed by the State Guarantee fund, so they could go under and leave claims on the table. Fortunately, they are usually also large companies, and not likely to go under………but they could.

The surplus lines market provides us an avenue for riskier types of insurance and specialized insurance, which often is lower volume business for the company.

Sometimes the lines cross. For example, I recently was referred a plumbing contractor, for whom I submitted applications to the usual surplus lines companies. Then I discovered that there are two admitted companies who might take on a plumber with low receipts, new in business, no track record, and so on.

You never know if such markets exist unless you have access to many, many markets through your large marketing division, which we have at Commercial Services Insurance.

If you want to check more markets than you currently have, contact us at .

Audit Issues with Workers Compensation Coverage

What could possibly go wrong with my workers compensation audit?

I received a copy of an audit statement from one of our work comp companies that went to my client. It seems that they had increased his work comp audit premium over time.

Workers compensation carriers (companies) will reconcile their issued policies at the end of the policy year to make sure that the payroll estimated at the start of the policy gets adjusted to the actual payroll that was paid during that policy year. The adjustment will usually involve either a payment request or a refund, depending on actual payroll vs. estimated.

This is where things often go awry. Incorrect classifications, misunderstandings of reported payrolls, incorrect inclusion of owner’s payroll, and many other issues can cause the audit statement to be incorrect. It is critical that your agent ask you if the payroll seems right, and to notify you immediately if it is not. Also, your agent must review the details of the audit to make sure that the rating characteristics included in the audit are correct as he/she understands them.

Once certainly does not want to pay the insurance company more than is owed. It requires diligence and attention on the part of the agent to protect his client from unduly high premiums.

Want to have us review your coverage? please contact us. We have been doing this for nearly 30 years, and we keep an eye on your money.