Maximum Protection_ Minimum Expense by wuyunyi

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									FINANCIAL




                                 O
                                               n the plus side, the health of the insurance in-
                                               dustry is improving. Best of all, the insur-

 Maximum Protection,                           ance industry’s improving financial picture
                                               has not been accomplished with increases in
                                               the rates pressure cleaning businesses pay

 Minimum Expense                 for their insurance coverage. In fact, insurance prices have
                                 actually fallen in recent months.
                                    According to the Risk and Insurance Management
 by Mark E. Battersby            Society, Inc. (RIMS), an industry watchdog, average pre-
                                 miums for insurance declined in 2004. Many pressure
                                 cleaning contractors and equipment dealers were able to
                                 renew their policies at rates comparable to or lower than
                                 those obtained the year before. According to a recent RIMS
                                 survey, prices declined on most major types of insurance.
                                    Admittedly, some of those rate reductions were
                                 barely noticeable, only around one percent for general
                                 liability insurance, property insurance rates dropped
                                 two or three percent. What’s worse, those rate reductions
                                 may not last.
                                 Steps to Affordable Insurance Protection
                                    Every pressure cleaning business, large or small, should
                                 have a plan in place to manage the risks that are part of oper-
                                 ating the business. Without such a plan, losses can leave
                                 the business vulnerable to failure, and employees and
                                 customers exposed to injury.
36 • March 2006 • CleanerTimes
   A loss prevention plan helps pro-     to risk. That, in turn, may mean           Workers Compensation—although
tect the business—as well as its         looking at the property, equipment,     nothing about insurance is easy, of
owners. Should a loss occur despite      products/services, and employee-        the four types of insurance cover-
precautions, that loss prevention        related exposure to risk in the busi-   ages, workers compensation comes


        Adequate, affordable insurance coverage for any pressure cleaning
        business is an on-going concern. With a few simple strategies, a reliable
        advisor, and a little homework, that protection can become a reality.
plan should contain strategies or        ness. Then, and only then, is anyone    closest to being a “no-brainer.”
methods for managing the loss in         ready to purchase insurance that        After all, laws in all 50 states re-
order to prevent additional losses.      will provide the funds needed to        quire employers to maintain work-
   In other words, the goal is to        help restore the operation in the       ers’ compensation insurance. What’s
develop a plan to help prevent loss-     event of a loss. Which leaves the       more, in most instances, the rates
es from occurring and to manage          question: what insurance is needed?     are established by the state.
those that do occur. Perhaps employ-     Basic Insurance                             To reduce the cost of this necessary
ees are not using protective gloves         The basic business insurance         insurance, do not accept the first
or glasses when they should, or a        package, according to many experts,     price offered. Ensuring that the pres-
retail store may have a poorly lit       consists of four fundamental types      sure cleaning business is categorized
entryway. Either scenario could cause    of insurance coverages: workers’        properly means it will be charged the
injury to employees and visitors,        compensation, general liability, auto   appropriate rate. No one wants to be
resulting in serious financial losses.   and property/casualty—plus an           classed as an explosives manufacturer
   That means evaluating the pres-       added layer of protection over these,   if the business really involves pres-
sure cleaning operation’s exposure       often called an umbrella policy.        sure cleaning.




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                                                 For information circle 170
                                                                                              CleanerTimes • March 2006 • 37
   Another way to reduce the costs              its premises, as well as exposures     business’s net worth. Unfortunately,
of workers’ comp is to take advan-              related to its products or services.   that does not work anymore be-
tage of rate variances offered in                   Naturally, no insurance compa-     cause people now sue for the amount
many states. After a certain premi-             ny wants to be responsible for poor    of the policy—and your net worth.
um level, usually $5,000, employers             workmanship. As a result, general          Thus, there are two extremes
can be rated based on their claims his-         liability insurance tends to be so     that a contractor or equipment deal-
tory. Naturally, the fewer claims,              rife with exclusions that many con-    er might want to consider. The first,
the lower the premium.                          tractors and suppliers often are not   the so-called “empty pockets”
   General Liability—is the most con-           sure why they have it.                 approach is to buy little or no insur-
fusing and misunderstood type of                    The best strategy with general     ance so as not to become a target of
insurance coverage. Overall, com-               liability is to determine how much     lawsuits. The other approach is to
mercial general liability coverage              coverage is needed. The old rule       buy $2 million to $3 million of lia-
insures a business against accidents            was that you should buy general        bility insurance—generally, the
and injury that might happen on                 liability insurance equal to the       most you will need.
                                                                                           Auto—like workers compensa-
                                                                                       tion, auto insurance is fairly, straight
                                                                                       forward. Even saving money is rou-
                                                                                       tine: simply increase the deductible.
                                                                                           Of course, cost cutting should not
                                                                                       result in lower policy limits. Many
                                                                                       states set minimum liability cover-
                                                                                       ages, and those coverages may be
                                                                                       well below what a pressure clean-
                                                                                       ing business requires. If the business
                                                                                       does not have enough coverage, the
                                                                                       courts can take everything. Many
                                                                                       experts suggest carrying a minimum
                                                                                       of $1 million in liability coverage.
                                                                                           Property/Casualty—the majority
                                                                                       of property insurance is written on
                                                                                       an “all risks” basis as opposed to a
                                                                                       “named peril” basis. The latter
                                                                                       offers coverage for specific perils
                                                                                       spelled out in the policy. If a loss
                                                                                       occurs from a peril not named, then
                                                                                       it is not covered.
                                                                                           For starters, make sure the pres-
                                                                                       sure cleaning operation is covered
                                                                                       by an “all risks” policy. Then go
                                                                                       the extra step and carefully review
                                                                                       the policy’s exclusions. All policies
                                                                                       cover loss by fire. But what about
                                                                                       losses from such casualties as hail-
                                                                                       storms and explosions? Many busi-
                                                                                       nesses purchase coverage for all of
                                                                                       these risks.
                                                                                           Whenever possible, “replace-
                                                                                       ment cost” insurance should be pur-
                                                                                       chased. This will replace the dam-
                                                                                       aged property at today’s prices,
                                                                                       regardless of the cost when you
                                                                                       bought the equipment or proper-
                                                                                       ty. It is protection against inflation.
                                                                                       Naturally, total replacements should
                                                                                       not exceed the policy cap.
                                 For information circle 102
38 • March 2006 • CleanerTimes
For information circle 83
   For full protection, there is replace-       pressure cleaning business requires        small contractor or equipment deal-
ment insurance with an inflation                professional assistance. Often,            er, especially those with only one
guard. This adjusts the cap on the              choosing the right insurance agent         fixed business location, one fire,
policy to allow for inflation. If that          can be as important, if not more           accident, or theft can prove disastrous
is not possible, then be sure to re-            important, as selecting the types          and contributions to a reserve fund
view the limits of your policy from             of coverages you require. The most         for large potential fire damages can
time to time to ensure that you                 fundamental question here is               be prohibitedly high.
are still adequately covered.                   whether to select a so-called “direct          A more popular, and far safer,
   Something Extra—in addition to               writer,” who is someone who                form of self-insurance, involves
these four basic types of insurance,             represents just one insurance com-        adjusting the size of the loss that
many insurance professionals                    pany, or a broker who represents           the pressure cleaning business will
recommend an additional layer                   many companies.                            be responsible for under its cur-
of protection, called an “umbrella              Options and More Options                   rent insurance coverage. Higher de-
policy.” This protects you from                     Instead of purchasing insurance        ductibles mean assuming more of
payments in excess of your exist-               against certain risks, a number of         the loss, as well as reduced insur-
ing coverage or for liabilities not             businesses have chosen to accumu-          ance premiums.
covered in your other policies.                 late funds to cover losses. This is        How Much Is too Much?
   Going the Extra Mile—aside from              called “self-insurance.” A pressure            It should be obvious that it does
an umbrella policy, there are sever-            cleaning business that self-insures        not take much—a fire, burglary, the
al other specialized types of insur-            usually sets aside cash reserves on a      illness of a key employee—any one
ance coverage worth considering:                periodic basis to be drawn upon only       of these can trigger the downfall
• Business interruption insurance;              in the event of a financial loss result-    of a pressure cleaning business.
• Mechanical breakdown insurance;               ing from the assumption of a pure risk.    Insurance can provide a financial
• Director’s and Officer’s                          Unfortunately, self-insurance is       cushion for many different types
   insurance; and                               usually only a realistic choice for big    of losses, but often is ignored be-
• Key employee life insurance.                  business or pressure cleaning oper-        cause of “cost” concerns.
   Obviously, figuring out which                ations with operating units spread             Surprisingly, however, insurance
of these may be important to your               over a wide geographic area. For a         is not that expensive. Out-of-pocket
                                                                                           expenditures for insurance can be
                                                                                           reduced with business tax deduc-
                                                                                           tions. Insurance costs themselves can
                                                                                           be reduced using risk assessment
                                                                                           and prevention strategies. There is
                                                                                           even self-insurance to help manage the
                                                                                           cost of that much-needed protection.
                                                                                               No two businesses, not even busi-
                                                                                           nesses the same size and in the same
                                                                                           industry, will have the same types of
                                                                                           insurance coverages, nor will they
                                                                                           want to assume the same amounts of
                                                                                           liability. A growing company may be
                                                                                           more willing to assume a greater
                                                                                           level of risk and forego some insur-
                                                                                           ance protection, increased deductibles,
                                                                                           etc. Another company, not growing,
                                                                                           but more interested in conserving
                                                                                           and protecting its assets—and those
                                                                                           of its owner—may choose the route
                                                                                           of being heavily insured.
                                                                                               Adequate, affordable insurance
                                                                                           coverage for any pressure cleaning
                                                                                           business is an on-going concern. With
                                                                                           a few simple strategies, a reliable
                                                                                           advisor, and a little homework, that
                                                                                           protection can become a reality. CT
                                 For information circle 317
40 • March 2006 • CleanerTimes

								
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