If you ask the average business owner about their personal credit, most would quickly tell you where they stand. When you ask them about their business credit, they will promptly cite Dun & Bradstreet or Experian Business Credit. But ask those same business owners about their ‘Insurance Credit’ and most wouldn’t be able to tell you. Insurance credit is very similar to consumer credit.
Consumer Credit
What is consumer credit? The simple answer is to acquire goods or services from a supplier based on the expectation that the same will be paid for in the future as agreed.
Some consumers are excellent about paying their creditors as agreed, and others are not. Conscientious and responsible consumers receive a credit score that represents how well they met the expectations of their creditors. Their diligent efforts get defined by lower interest rates, better terms, and favorable conditions for future credit purchases.
You don’t get a trophy for just showing up in the real world. In other words, why should a creditor offer the same rates, terms, and conditions to consumers who aren’t responsible or weren’t willing to make the necessary sacrifices to meet their obligations? These consumers pay higher interest rates.
What is Insurance? Insurance is a product that compensates for a loss, damage, illness, injury, or death due to an accident or covered event.
Most people will agree that an accident is ‘an unforeseen event or condition’ resulting in a loss or injury. When a general condition exists that results in an accident, it is not an accident – it is a certainty.
It would be difficult to describe an injury that occurred due to failing to maintain or repair equipment as an accident. Insurance carriers consider claims such as this a failure on the insureds part to meet their obligations.
What is Insurance Credit? Insurance credit is the expectation of the insurance carrier that the insured will make every effort to avoid or correct conditions that would inevitability result in a loss.
Like consumer creditors, insurance carriers consider many factors when determining whether or not to offer coverage to an applicant. For instance, when reviewing a loan application, a consumer creditor will assess how well the applicant has met their past obligations to repay their debts as agreed.
Similarly, an insurance carrier will consider how well an applicant has avoided or corrected conditions that would have inevitably resulted in a loss. This measurement is referred to as an Experience Rating. The Experience Rating (ERM) is a business’s Insurance Credit Score.
Your MOD!
The Experience Rating (ERM) ‘modifies’ the final premium a consumer pays, just like a Credit Score modifies the final price paid for products or services purchased on credit. A company with a low ERM will pay less in final premiums than a company with a high ERM.
What are ‘best practices’? Remember hearing your mom say, ‘tie your laces. You’re going to trip and fall’? Who is more likely to trip and fall – the child that doesn’t tie their shoes or the child that does?
Responsible consumers make every effort to manage their credit. These efforts include paying on time, not utilizing more than 50% of the limit, managing the number of inquiries, etc. These efforts could be referred to as ‘Best Practices.’
Best Practices
‘Best Practices’ is simply a term used to describe the prudent steps or actions taken to achieve the desired result. An example of a Best Practice in business might be the consistent use of an employment application. Another Best Practice might be to have the job application reviewed by a Labor Law Attorney at least every five years to ensure that it remains current with state and federal guidelines. Using up-to-date applications can help reduce claims costs involving EEOC or EPLI-related suits; at the very least, the resulting claims costs won’t increase due to a company’s failure to utilize or keep their applications current.
Imagine all the other Best Practices a company could use to reduce its exposure to a loss? If your company is conscientiously employing Best Practices, it should be lower premiums than companies that don’t ‘tie their laces.’
However, these results are not going to happen by accident. They occur as a result of hard work. And Insurance carriers recognize the companies that employ Best Practices and refer to those companies as ‘Best-In-Class.’
Insurance Credit Repair? The methodical steps taken to identify operational weaknesses or deficiencies and apply corrective actions to reduce exposure to loss.
Those companies considered ‘Best-In-Class’ receive the best rates, terms, and conditions from the insurance carriers in the same way that consumers with high credit scores receive the lowest interest rates, terms, and conditions from creditors and suppliers.
RiskScore
This is where our RiskScore® comes to play.
RiskScore® is a tool used to evaluate a company’s Best Practices. The company’s operations are methodically evaluated, Best Practices are validated, deficiencies are paired with corrective actions, improvements are implemented, results are communicated to the insurance carrier, and competitive premiums are advocated on the company’s behalf. Repaired!
Is That All?
No! Employing Best Practices is just the beginning. Accidents will still happen, and when they do, there will still be claims filed. You can use techniques to reduce the claims costs and the subsequent indirect costs that will adversely affect your profit margin. A good risk manager can help your company implement accident investigation procedures and the best claims handling to achieve optimal claims resolutions. Profit margins increased!
Insurance is much more than an annual transaction. Regardless of where you stand now, you should first identify an experienced ‘Advocate.’ This person will help you become ‘Best in Class’ and tell your story well.