By now, just about everyone has felt the effect of COVID-19. Either financially, through social distancing, or both. For many businesses, reducing expenses and keeping afloat is the main concern until things can return to some level of normal. On the commercial insurance front, there are updates and adjustments business owners can make to their policies that can potentially help with expenses and cash outlay. Many carriers are proactively making changes to policies to help their clients, and most are open to the idea of adjusting policies to help with the effects of COVID-19. Some of the things to consider are:
- Worker’s Compensation Policies (WC): Adjusting payroll with your WC carrier. Many policies are based on estimated payroll one year ahead of time, and adjusted at an annual audit. Many businesses unfortunately have, or will have, large reductions in payroll due to changes stemming from COVID-19. Notifying your carrier of payroll changes can help with monthly premiums and can be adjusted again later if needed. Keep in mind, if you have a reduction in payroll and don’t make adjustments with the carrier, the business will probably be receiving a return of premium at the annual audit, but this can take months to arrive. Policies based on actual payroll paid each month will have adjustments made based on the payroll reduction and have no need to notify the carrier.
- General Liability Policies (GL): Adjusting revenue with your GL carrier. Many GL policies are revenue-rated, meaning that revenue is a factor in determining your premium. Like WC does with payroll, for GL, revenue is estimated in advance and adjusted at an annual audit. Unlike WC, GL policies are not always audited —which means that if your GL carrier does not do an annual audit, there will not be a return of premium, even if you had a reduction in revenue. The other side is also correct: if you had higher than estimated revenue, there would be no additional premium collected. Proactively reaching out to your GL carrier with updated revenue estimates would be in your best interest to see if there’s an opportunity to get a reduction in your GL policy premiums. Other GL policies are room or square footage-rated. These types of policy premiums will probably not be affected with a reduction in revenue.
- Professional/E&O Policies (E&O): Adjust revenue with your E&O carrier. Premiums for E&O are often determined, like GL, with revenue being one of the main factors, and audits are not always performed. Like GL, notifying your E&O carrier of a reduction in revenue, can result in a reduction in premiums.
- Property Policies (Prop): Adjust income with your Prop carrier. If your Prop policy includes coverage for business income, it’s probably based on estimated income (Revenue would be top line revenue, Income would be net income plus expenses). So, if you’re experiencing a reduction in revenue, you will probably be experiencing a reduction in income as well. Notifying your Prop carrier of reduced expected income can get you some relief in premiums. However, unlike GL or WC, this can reduce your benefit as well. Your WC and GL policies use revenue and payroll to determine the premium for a set limit of coverage. Prop policies often use income to determine a premium and a limit. So, a reduction in one probably means a reduction in both. There are some small business policies that are Actual Loss Sustained (ALS) policies for income — meaning that they don’t have an actual limit listed in the policy. They just cover your actual loss of income for a certain time frame, often just 12 months. The main difference in an income limit policy and an ALS policy is time. An ALS policy will pay for loss of income for a limited amount of time. A limit policy will pay until the limit is exhausted. Be careful if you approach your Prop carrier for a reduction in income coverage. You don’t want to come up short if it’s needed at a later date.
- Auto Policies (Auto): If you have a commercial auto policy and have suspended operations involving the company auto, you can notify the carrier if the auto is not being used due to the suspension. The carrier can make adjustments to the change in use of the company auto that can reduce or eliminate the premium. Keep in mind that further use of the auto would be prohibited without a current, active auto policy in place.
As I mentioned above, many carriers are open to making changes to commercial policies to help with all the changes brought on by COVID-19. Keep in mind that this situation is new to everyone, and is creating unique situations that all companies are trying to find ways to cope with, including insurance companies. Many systems are not set up for the types of credits and adjustments the carrier may want to provide. Be patient and work with your broker to get your carrier the information that they need in order to provide you the adjustments that you need.
Good luck and be safe out there. Feel free to contact G4 Risk Solutions with any questions or if you need assistance with your commercial insurance needs.
G4 Risk Solutions