If you ask the average business owner about their credit, most will quickly tell you where they stand. They will promptly cite Dun & Bradstreet or Experian Business Credit when you ask them about their 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.
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 at paying their creditors as agreed, and others are not. Conscientious and responsible consumers receive a credit score representing how well they met their creditors’ expectations. Lower interest rates, better terms, and favorable conditions for future credit purchases define their diligent efforts.
You don’t get a trophy for 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 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 due to failing to maintain or repair equipment as an accident. Insurance carriers consider claims such as this a failure on the part of the insured to meet their obligations.
What is Insurance Credit?
Insurance credit is the insurance carrier’s expectation that the insured will make every effort to avoid or correct conditions that will inevitably result in a loss.
Like consumer creditors, insurance carriers consider many factors when determining whether 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 for workers’ compensation. The Experience Rating (ERM) is a business’s Insurance Credit Score.
The Experience Rating (ERM) ‘modifies’ the consumer’s premium, just like a Credit Score modifies the price paid for products or services purchased on credit. A company with a low ERM will pay lower workers’ compensation premiums than one 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’ is simply a term used to describe the prudent steps or actions taken to achieve the desired result. An example of a best business practice might be the consistent use of an employment application with an up-to-date fraud statement. Another Best Practice might be to have the job application reviewed by a Labor Law Attorney at least every year to ensure that it remains current with state and federal guidelines. Employment applications can help reduce claims costs involving EEOC or EPLI-related suits and will be helpful to defense attorneys during a workers’ compensation deposition; at the very least, claims costs won’t increase due to a company keeping 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 enjoy lower premiums than companies that don’t ‘tie their laces.’
However, good results do not happen by accident. They are the result of thoughtful, consistent, diligent hard work. Insurance carriers recognize companies that employ best practices and refer to them as ‘Best-In-Class.’
Insurance Credit Repair?
The methodical steps are taken to identify operational weaknesses or deficiencies and apply corrective actions to reduce loss exposure.
Those companies considered Best-In-Class receive the best rates, terms, and conditions from insurance carriers, just as consumers with high credit scores receive the lowest interest rates, terms, and conditions from creditors and suppliers.
Employing best practices is just the beginning. Accidents will still happen, and claims will still be filed when they do. You can use techniques to reduce the claims and subsequent direct and indirect costs that will adversely affect your profit margins. A claims coordinator and risk manager can help your company implement accident investigation and claims handling procedures designed to achieve optimal claims resolutions.
Remember, your ERM modifies your standard premium, and for every dollar increase, your company will need to generate additional revenue of at least 10 dollars just to break even. So don’t believe you can outsell your claims activity for a second.
Contact Nixer Comp
Insurance is more than just an annual transaction; it’s about building a strategy that sets you apart. Wherever you are in your journey, start by partnering with an experienced ‘Advocate’ who can help you become the ‘Best in Class’ and effectively tell your story. Contact the experts at Nixer Comp today to get started!