The $150,000 Minimum Premium Nobody Explained
Let me tell you about a business owner that was referred to us recently. She called me up and explained her situation. Her general liability insurance had gotten out of hand, and she couldn’t afford it any longer.
We researched the wording on her policy and found it had a $150,000 minimum premium she wasn’t aware of. Her broker never had really sat down and explained it to her. The policy had been rated on $9.2 million in estimated sales, but her actual sales came in at $6.8 million. Without that minimum, she’d have had about $43,000 coming back to her at audit. Because of it, that money stayed with the insurance company. She told me plainly that if she had known about that minimum up front, she never would’ve gone with that company.
Why this matters to contractors
Here at Harris Insurance, we mostly write general liability (GL), marine general liability (MGL), state act workers’ comp, and USL&H for contractors. All of them get audited. But this kind of surprise mostly shows up on GL and MGL.
GL and MGL are usually rated on an estimate of your sales, and then trued up at audit after the policy year ends. When your sales come in lower than the estimate, you’d expect some money back. A minimum premium can stop that cold.
A minimum premium isn’t a trick, and it isn’t against the rules. Lots of GL and MGL policies carry one. The problem comes when nobody tells you about it before you sign. (How minimums and audits work depends on the carrier and the policy, so read your own policy and ask your agent.)
We help you with audits, too
Pointing out that $150,000 minimum is just one way we look out for our clients at audit time. Audits are where a lot of money gets won or lost, and most business owners face them alone.
Here’s another one. We recently saved a client over $321,000 on an audit. The auditor tried to reclassify one of their codes to a higher-rated code. We went to bat for them and got it changed back to the original code. That’s money that stayed in their pocket instead of going to the insurance company.
If an auditor ever tries to move your class code, don’t just sign off on it. Call us first.
Questions to ask before you sign
- Does this policy have a minimum premium, and how much is it?
- Is the premium fully earned, or can I get money back if my sales come in lower?
- What happens at audit if my numbers are higher than the estimate, or lower?
- Is the estimate you used realistic for my business this year?
Your agent ought to work for you
That’s the whole point of this story. Your agent ought to be working with you and for you, not just looking out for the insurance company. Before you sign anything with us, we’ll walk you through the minimum premium, the audit, and what happens if your sales come in lower than the estimate. And when the auditor shows up, we’ll be in your corner.
Harris Insurance is an independent agency I started in 1980, and we’ve been writing USL&H since 2007. If you’d like a second set of eyes on your GL or MGL renewal, call me at 205-275-5005.
O. Rickey Harris
Harris Insurance (Old National Insurance Inc.), Jasper, Alabama