Why value added services are more critical than ever
Ask yourself: would you rather have 100 percent of zero or 80 percent of something?
That’s the dilemma that we are facing as brokers in a drastically hard market. If a client’s premiums increase by 400 percent, your commissions get fatter until the client goes bust; and then you are facing 100 percent of zero.
In a market that may only have the states assigned risk program as its only choice, how do you shop an account or get the premium down?
Ask yourself the following questions:
• Is the client properly rated for the exposures that exist? If not, what have you done to argue the case to get the class codes reassigned?
• Is the client’s current experience modification correct? If not, what are you doing to get it fixed for the client?
• Does the client have any open claims that are rotting in adjuster purgatory, with open reserves that are killing the client’s experience modification?
• Are you coaching your client through the premium audit, or are you letting a $10 an hour accounts payable clerk do your job for you?
Any one of these problems or half a dozen more could be causing your clients’ rates to balloon unnecessarily. Every dollar that gets spent in wasted workers’ compensation premium takes $10 to $20 in additional sales to replace, depending on the industry.
If your client is in one of the trades where payroll and workers’ comp are the two largest expenses, not necessarily in this order, any one of these items could cause a business to go under because they cannot price a job competitively. Any one of these items could add 10 percent or more to the rate the client is paying. A sizeable claim could add as much as 100 percent.
Let me give you examples of each of the cases mentioned above.
A medical marijuana club (yes, I am in California) was being classified with three different governing class codes—there should have only been one. The majority of payroll was placed in the 8017 class code, the governing class code. So, the only exception class codes should be 8810 (clerical) and outside sales, which is a zero for them. Instead, they had physicians, truck farms and trucking class codes used on the risk. This is adding an additional $30,000 per year in premium to the account. By arguing on audit that there should not be more than one class code being used, I am going to get this money returned to the client.
I have another client whose business is a bagel bakery. When they came to me, they had an experience modification of 1.58 that was putting them out of business. Upon review of their loss history, I found that they had a claim that was erroneous on their loss history. The erroneous claim was being reserved at $8,000 and upon review of their experience rating form, I found that the claim was showing up on it as well. This claim alone caused a 10-point change in the clients experience modification. This one error would have cost the client $30,000 over three years. By fixing it, along with cleaning up two of his claims, I was able to cut the clients insurance costs by 32 percent.
Open claims seem almost self-explanatory. Any decrease in a client’s reserves will create real rate relief for the client. If there are $50,000 to $100,000 in reserves and you can get a claim closed and remove unnecessary reserves, or help get an employee back to work to push the system along you are creating value for your clients. Every dollar in reserves that you can get removed directly affects the clients’ experience modification. If you can get $20,000 to $30,000 in reserves removed on a claim, that will do more than any amount of shopping premiums at renewal will ever be able to do.
Errors by the accounts payable clerk can cost a company big time. These people are not experts at workers’ comp—you are, or should be.
I have even seen clients where dozens of employees had to be reclassified at audit time, because the accounts payable clerk had incorrectly listed a profit sharing bonus as retail sales. Every clerical employee had been reclassified as the store’s NOC (Not Otherwise Classified). This error cost a company $15,000 that should never have owed it.
These are just four of 12 different ways that our agency brings value to our clients on a daily basis. If we aren’t aggressively doing everything possible to control our clients’ workers’ comp costs, we are going to find ourselves being replaced by brokers that will. Or worst case scenario would be that the client doesn’t need coverage any longer because rising costs have caused them to cease all business operations.
Elliot Katzovitz is Calif.-based broker and agency principal who specializes in workers’ compensation insurance. He can be reached by e-mail at: firstname.lastname@example.org.
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