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Insurance, explained clearly by a family with three generations of expertise.
Aaron (00:00)
Well everybody and welcome to the Speaking of Insurance podcast. My name is Aaron Bolger.
Brian Bollinger (00:04)
And I'm Brian Bollinger.
Aaron (00:06)
Today we are going to be talking about how as your business grows, your insurance should grow. And as your business shrinks, vice versa as well, right, Brian?
Brian Bollinger (00:14)
Yeah, it's a big challenge, right? If everything stayed the same, life'd be a lot easier, but always, you know, business is either increasing, in which case sometimes you might have additional premium audits or you might have to change companies as you outgrow certain programs. and the flip side on the other way, you might have to make changes on the negative side too.
Aaron (00:32)
Let's talk about the negative side first. I know we love to be you know negative Nancy's over here. So if somebody were to be shrinking as a business, obviously it's quite tricky. we've been working with some people, you know, everybody has different types of problems. And so we work with a bunch of different types of insurance. But what strategies have you seen in terms of their risk mitigation to their insurance premiums dropping to eligibility? Just like a overview of what happens as these businesses shrink.
Brian Bollinger (00:58)
Yeah, I think the biggest challenge people have when they first do their insu insurance renewals, you know, you're projecting what your revenue will be, you know, six, nine months, a year out in some cases. It's really hard to do, right? The forecast gets tough. The longer you go out, the harder it's to figure out. So we do see some clients that get a little optimistic and the numbers come start to come in and they're look like they're lower than what they were before. And there's sometimes sometimes we things we can like on the workers' comp side to possibly
Brian Bollinger (01:25)
reduce their payroll exposure as long as they're not a minimum premium and and kind of carry forward some of that savings make that savings happen now as opposed to waiting to a final audit and then doing a you know waiting for the return premium from the insurance company. So that's that's one of the strategies we use. Another strategy is same thing on the sales side, it can happen. Some of the general contractors we have and contractors and art are some tradespeople, they actually have a fixed price. They're on the excess surplus lines policy.
Brian Bollinger (01:54)
And if they don't hit their sales quota, they don't get that money back. Or they only get like maybe 10% or 20% back if it's a slight overpayment. So it's important to talk to your agent or broker and really make sure your forecasts are in line.
Aaron (02:07)
How do you do that? I mean, obviously I don't think that's may maybe it is a part of the insurance broker's job. How do you coordinate that estimate? Obviously, you know, there's a bunch of economics that go into it, but how do you make sure that you're not getting that that big you know chargeback or that refund that that you probably think that you would be entitled to?
Brian Bollinger (02:23)
Yeah, I think the hardest part of it really is working with our clients to say, hey, you know, these companies will give you a phen phenomenal rate, a very low rate, but but in exchange, you know, they're not gonna give you any money back. So we really want to try to sit down and talk about what what those sales will be, what those gross receipts will be for the forthcoming year. And usually we try to get them to I don't wanna say sandbag them, but definitely be a little conservative with them. when I'm starting with like startups and things like that, I like to go into three different numbers. You've got your optimistic number, which is usually a very
Brian Bollinger (02:53)
large growth rate. You've got your pessimistic number, which is, you know, pretty, pretty low. And then there's some sort of optimistic, you know, number in there, realistic number in between those two. That realistic number is where we try to kind of start with our clients at, and we try to baseline like how that compares to the kind of their pessimistic number. So we like to be a little bit lower in that range when it comes to forecasting those gross receipts.
Aaron (03:16)
That definitely makes sense. I mean, obviously you want to make sure that you're giving your client the best deal and obviously also properly representing the insurance company, the estimations of the sales year to year, because that's a part of your job and that's part of the insurance job. And if you misrepresent that, or you know, you you sandbag it or whatever it is, right? You you put it super low. That that can also have its detriments in terms of, you know, renewals and renewal eligibility and carrier relationships and the likelihood of getting renewed, right? Because obviously you find a good insurance company, it seems like it works with the
Aaron (03:46)
insured
Aaron (03:47)
and they like the concept of the hey fixed cost, right? We we can't really go much below it and it's a phenomenal deal like you were saying, you kind of want to keep them with that company, right? Especially if it works for them.
Brian Bollinger (03:58)
Yeah, I think that in the
Brian Bollinger (04:00)
Construction space is the one I'm thinking about where the number of markets, number of companies that want to compete for certain certificates of insurance requirements or certain unique things and risks of the of the actual business itself may not be a big number. It might be a half dozen companies that really compete in that space. You don't want to start burning them too quickly. you know, every couple of years you'll hold them accountable, make sure their rates are in line. but assuming the rates are in line and your loss has been pretty good, it's it's a pretty easy thing to do. I'd say the opposite side comes in if we
Brian Bollinger (04:30)
change every year between a lot of different companies. You know, if you start having losses with another company and you're trying to go back to a career with before, they may not want you back. Especially if they see you as a shop or a guy or a gal or a company that switches every year. So you want to show some level of stability that you're a partner with that, you know, insurance company to try to make the money. The more money the insurance company's made off of you, honestly, the easier it is for an agent or broker like ourselves to say, hey, you know, yeah, I know they had a $100,000 or $2,000 claim this year and you lost
Brian Bollinger (05:00)
money on this year, but over the last three or four years you've made, you know, five hundred thousand dollars. So this is still a profit piece of business for you. Makes it a lot easier for us and an even easier for you in terms of getting a good value over the long term.
Aaron (05:13)
And that can go regardless of your business's performance. That that's kind of like a an outside factor is how well you're managing your claims and how well, you know, obviously you're operating your business. That's separate from the insurance side of things, but it it is a little bit intertwined. So how do these people strike that balance between, okay, my business isn't doing so well? How do I make sure that my insurance is properly set up without overpaying? Because that's one of the big things that we hear people complaining about is like, my business is it, you know, it's going down in terms of sales, but somehow my insurance pricing is going up.
Aaron (05:43)
Like what do you talk to them about? How do you walk them through that?
Brian Bollinger (05:47)
I think it's important to kind of have a budget number.
Brian Bollinger (05:49)
And and kind of how I try to think of it or approach with my clients is I try to say that there's certain costs in your business that are fixed, right? Some costs are fixed and some are variable, you know, as a percentage of your sales. So we try to have that conversation pretty early with them and say, hey, you know, this is what it looks like right now. You know, you've got, you know, six percent of your revenue going towards or your payroll going towards workers' comp. If you've got a general liability policy based on payroll, you know, it could be that way. Sometimes it's based on sales. so you try to create this model that kind of
Brian Bollinger (06:19)
show them like hey this is how your growth is impacting your your costs when it comes to insurance and if you double the you know value of your your business you double the sales of your business your premium may not double for the liability in some cases it will in some cases it won't and so it's just important to kind of dig into those numbers talk about what's happening with your business on the downside we mentioned we started started with this like on workers comp, you know, six months into a policy term if you're not you know 20% of your protected payroll
Brian Bollinger (06:49)
We can probably go to underwriting and say we think you're gonna be half of what we thought you know you were gonna be. And in some cases they'll take that number down for us. they might want to do a little mock audit or something like that to make sure that that's true. but for the most part, they try to work with you.
Aaron (07:03)
Ding-a-ding ding. Somebody's a busy man. Thank you for taking the time today, Brian, to do this. Obviously, we're not done yet. Don't worry. I'm not letting you off the hook.
Brian Bollinger (07:10)
Ha
Brian Bollinger (07:10)
ha ha ha.
Aaron (07:12)
Yeah, the the people would be rioting that they they want to know you know what to do if their business is going down, going up. Let let's talk about the the optimistic lens, right? Let's say that your business is going up, you want to be startup people, or you know, maybe you're a contractor in California getting a lot of these projects on these rebuilds, reconstruction, all the things like that. What are some things that they should be considering looking at? Like any specific markets, any specific, you know, independent broker, captive broker, like things that they should be thinking about when they're, you know, growing.
Brian Bollinger (07:40)
Yeah, I think the growing aspect is kind of fun, right? I mean, it's easier to to make more money, right? The challenge for these businesses though is to be profitable while they're growing. we do tend to recommend people look at their insurance levels. You know, if they don't have an umbrella, they probably need to get one.
Brian Bollinger (07:56)
If they're at five million, some of our clients end up going to 10 million for the umbrella to get some bigger projects or bigger jobs. so there are these costs that kind of creep in, and things like the umbrella, for example, tend to be a fixed cost, they tend to be an actual just flat number. it is what it is, take it or leave it. and so I think it's important for clients to kind of understand that that's how that program works and understand what the cost trade-offs are. Now, the flip side is you can double your gross receipts and you have a good
Brian Bollinger (08:26)
margin, say five, ten, twenty percent of your business is profit, you know
Brian Bollinger (08:30)
The extra half a percent or whatever it's being for your for your insurance, you know, you can usually eat that and and usually justify that for your projections. the flip side is when you're shrinking, sometimes you gotta look at those umbrellas and see if you can scale them back. Now, one thing we try to remind our clients as they're growing and signing these contracts, all those contracts you signed years ago, you still gotta review them. Some of them might require you to keep that $10 million umbrella in force for three years, five years, or 10 years after completion of that project or that job.
Brian Bollinger (09:00)
if you don't keep it, you could possibly inviolate be violent in violating that contract, expose yourself to some additional issues in the event of a claim. So all these things really get into the nuances of what you're doing and why.
Aaron (09:13)
That's that's one of the biggest things. I mean, we've I I don't know how many times we talked about classification, but classification is very important. Making sure that your broker has clarity, your company has clarity on exactly the operations of your business is absolutely crucial. let's talk about the line by line.
Aaron (09:29)
Is this impacted by my business's growth? And different types of companies that that could see some growth in some areas and maybe some lowering premiums in others? Like let's let's start with the commercial auto side. what are some examples of some companies that you can think of that might be doing well right now that should be looking at specific things on the commercial auto side in terms of additional markets, additional exposures, additional insurance?
Brian Bollinger (09:51)
Yeah, commercial auto is kind of a tricky one, right? I'd say where where clients tend to run into trouble with commercial auto is when they're growing, is they don't tell us about their new drivers that they have. And the insurance companies want to know that the drivers are, you know, acceptable, that they're on the policy. Obviously, as you're growing, you're adding additional vehicles, you're gonna have more more coverage there too, possibly more premium, obviously, because you're adding more vehicles.
Aaron (10:14)
Yeah, let let's let's talk about the the driver exposure and also the consolidation of of coverage and ensuring that it's properly coordinated because we we have clients that have that are growing and they have their auto insurance separate from us. And you know, on their excess policy, their driver's list is fully up to date, like you know, standard, everything, because you have to send that kind of every year the commercial auto exposure. But then if that commercial auto is separate, right, and they don't update that driver's list and they're not they're only sending it to us and not their current incumbent on the commercial auto.
Aaron (10:42)
that that can be dangerous, right? And that's that's a part of growing is understanding the the coordination of your coverages and brokers.
Brian Bollinger (10:49)
Yeah, I think that's where like c some companies like State Farm and stuff, they may not always ask for these things. a lot most of our preferred markets are Liberty Mutuals, our Travelers, our Kempers, our Mercury's, you know, our Progressives, you know, most of these kinds of companies you've heard of for commercial auto, they're pretty much on the ball. but they don't necessarily act they don't know when you've actually hired
Brian Bollinger (11:12)
somebody so they don't know when you have to add somebody to that policy. Same thing for state farm in their defense, right? Or farmers. The point is as you're growing and you're having this driver pool, as you want to expand that, you need to communicate that with your agent brokers andor insurance companies that you're working with, even if you've already screened the MVR and know that they're good to go.
Aaron (11:34)
And for so not just new drivers, new vehicles as well. Obviously, you're growing business. Let's say you're in the trucking space or you're doing something in terms of, I don't know, home health care, you're transporting people, whatever it may be, contractors. Obviously, you have some of your people driving out to job sites. If you're buying new vehicles, all those have to be disclosed immediately, right? And we have to talk about drive other car coverage, other features, other additional coverages. We can do that in a dedicated commercial auto, you know, episode, but there are a bunch of different considerations on the commercial auto side. let's talk about workers comp.
Aaron (12:01)
I mean, because there are companies that grow maybe
Aaron (12:03)
outsource some of their labor, drop some of their labor costs and are getting some automation to do most of the work and actually see their workers' comp premiums go down, right? Obviously it can go both ways, but let's let's talk about, you know, maybe some people are growing and seeing their, you know, workers' comp go down.
Brian Bollinger (12:18)
Yeah, I think it's a complicated thing. You know, the idea of outsourcing labor or using virtual assistance is something that's real. some of the companies are deciding that they're gonna not have accounting staff in-house. we've had a client that's done that in not too distant past, and they actually ended up having an employment practice liability claim, the person claimed discrimination. they shut down the entire department because it was cheaper to be, you know, outsourced to professional firm, meant that they had to utilize less staff and less management time, you know, kind of looking over the shoulder of their staff.
Brian Bollinger (12:48)
So there was a definite efficiency there, but they didn't get sued. So, you know, this idea of downsizing, it may be growing, but you might be reducing your headcount. So I want to make sure we make that distinction too, that that headcount matters, the headcount changes matter. What state you're expanding in, if you know, sometimes you're expanding outside of California, you know, you're adding a Nevada location or an Arizona location or Oregon or God forbid New York City. You know, it changes your risk profile.
Brian Bollinger (13:18)
insurance companies. And so as you expand, you need to kind of let your agent broker know, make sure the insurance company is okay with it, and try to adjust your, you know, insurance accordingly.
Aaron (13:29)
What are some examples of some companies right now in the the economic space or you know maybe insure tech, not insured tech, but startups as well, contractors that that you've seen or that you think would right now have their, you know, increase their sales and also have their workers' comp costs go down? Because that that's a really interesting topic for people thinking about getting into new industries and they're thinking about insurance or people already established in these industries and their premiums are going up, and maybe they should be going down if they're being properly shopped.
Brian Bollinger (13:59)
Yeah, I think I you know, we've had some clients leave California, as shocking as that is. And when they do that, the rates in other states tend to be a little lower. So it can be if you open up a secondary location or shift some of your employment to their location. we've had one client from California open up a Georgia location. and Georgia's rates were about a third that in California. the thing to keep in mind is that's just the workers' comp, but there's also general liability rate differences between states. There's a bunch of variables that go into this. It's not a real simple mathematical thing that we can say, hey,
Brian Bollinger (14:29)
for sure you do this, you save X percent. but it is something to contemplate. You know, you might have lower wages in other states and you might be able to keep your sales the same and the rates might be less. So it might be a double win in that regard.
Aaron (14:41)
Yeah, and obviously general liability, it's kind of, you know, class code based in terms of like sales. It can depend on, you know, different features of your business. payroll as well, some of the time depending on what you're in. workers' compensation is purely strictly payroll. Obviously, there are bunch of other factors that go into it. But what we're trying to get at what I'm trying to get at is how when you're growing, you might be doing more things in terms of increasing your array of offerings to, you know, people. And to maybe that's how you're growing is you're you went from being a plumber to now we're doing the whole
Aaron (15:11)
thing we're doing heating, plumbing, roofing. We're doing all the above. And maybe you're doing really well on like the whole home package. The workers' compensation premium is going to go up as you diversify the different insurance companies that you're going to be eligible for are going to change because roofing is one of those really tough class codes that we've talked about before. But maybe you're growing by niching down. And that's a lot of things that that's something that we've seen we've talked about really niching down as an as a company can lower that insurance cost. It can find you a specialty company that might be really good at you know offering good claims handling and good
Aaron (15:41)
coverage and also good insurance premiums if you have a niche. We we talk about lumber mems, right? I think like the the woodworking ones and they we have really good markets there that specialize in that and would be better just niching down on that one insured as opposed to the numerous different class codes.
Brian Bollinger (16:00)
Yeah, one thing to keep in mind is as you expand what you're doing, whether it's in state, out of state, whatever, sometimes your insurance company won't insure you for that. You have to change insurance companies. Like you've outgrown that particular program or that particular offering. And we have, you know, your agent or broker has to move beyond that. So these communication things, do it, you know, communicate before you make that decision.
Brian Bollinger (16:23)
communicate it early, try to get into specifics, try to give projections that pessimistic number, maybe a realistic number, and get the feel for what that cost could be before you pull the trigger and start to execute on those kinds of situations.
Aaron (16:36)
And definitely it also depends too. If you're with one of those companies that you know are charging a really good premium and they want it to be that be the bar of what the sales that you reach is, then that lower, more pessimistic number might be better. But if you want a more realistic number and you do expect or you think that there is room for exponential growth, getting an actual gauge of what that price could be at the upper end could be good as well. And so that's why it comes down to just working with somebody who has this level of of expertise, such as yourself and ha has a bunch of experience, because that that's really invaluable in terms of the advising and
Aaron (17:07)
Yeah. Go ahead.
Brian Bollinger (17:08)
Yeah,
Brian Bollinger (17:09)
and one and one thing too to keep in mind is, you know, not all growth is profitable. And sometimes, you know, we try to talk to our clients and say, you know, adding another state, Arizona, Nevada, adding two states in some cases, you know, there's a there's a cost for it and it needs to make sense for you. You know, you might end up having staff having to drive or fly between states, and now we've got multiple state workers comp policies. something we didn't also touch on when you were talking about adding like roofing or plumbing and HVAC and you know, various class codes to what you're doing.
Brian Bollinger (17:39)
It's important to keep your payroll accurate, right? Your pay you might have outgrown your payroll system. You might have just had, hey, Joey gets paid, you know, 100 grand a year, 80 grand a year. It's super easy because all we do is XYZ call it plumbing. super easy understand that. But once Joey starts doing roofing or something else, if you don't keep accurate records.
Brian Bollinger (17:58)
you could be liable for the entire amount of Joey's payroll going to that roofing class code. So you could get sticker shock. So we've had to work with a lot of our clients to really improve their record keeping as they grow to make sure that we're capturing the the payroll correctly.
Aaron (18:15)
Very, very interesting. I mean, obviously these are things that that you know they sound a little bit self-explanatory when they're said out loud, but if you don't think about it, I mean it's it's it can bite you. And we've seen that obviously. I think you've seen that in your weather of experience. one last thing before we close out. You talked about how excess insurance can be fixed. Let let's let's talk about how can a company 10x their sales and have the same umbrella pricing?
Brian Bollinger (18:42)
No, I mean not not ultimately. We've had some clients double and triple their sales with their excess program. And one of the things that happens with the excess surplus lines, it depends on if your policy is auditable or not.
Brian Bollinger (18:55)
Audital policy means you go through an audit at the end of the year and they adjust the pricing up. They don't usually adjust it down. Like I said, usually it's heads they win, tails they win. But in some cases you get a little bit of money back if your sales are a little short. On a lot of the excess policies that we write, they tend to be flat based. What that means, if you say you're doing 13 million, it's based on 13 million.
Brian Bollinger (19:17)
You really do 20 million when the audit comes through and it's the same company underwriting the excess as the primary. Next year, when we go and we give an application for 15 million, they're not going to believe us. They're going to want us to price that excess policy at 20 million because that's what you did last year. So just understand that, you know, we don't want to be too far under when we're doing this. That's why I mentioned that optimistic, that pessimistic, and that realistic number. that realistic number, you know, sometimes you do great and you exceed it. you know, what one other thing that gets
Brian Bollinger (19:47)
into this weird thing that that I don't think many people think about. It depends on how your accounting system is set up. Some of our clients are on a cash basis, so it means when the money is received, when the contract is signed, when that deposit is you know given to you, you capture that in that instant.
Brian Bollinger (20:03)
Even the work hasn't been performed, it's it's captured on the liability side. so you might have just signed a really big contract at the end of the year that inflated your end-of-the-year numbers, but that might represent months of work for your team. And next year might be a lot lower as you work through that backlog of of orders. So those kinds of things have to be really communicated and understood by you and the agent or broker, the team that you're working with.
Aaron (20:27)
Let's talk about our team. bull insure over
Aaron (20:30)
here, right? We talk obviously we we're growing a little bit. anything that we should be keeping in mind or some things that you've done in terms of our insurance, you know, adding that workers comp policy, right? So these new employees that we're hiring, making sure that the payroll is syncing, all things like that.
Brian Bollinger (20:45)
Yeah, I mean one of the advantages of agents and brokers honestly is our workers' comp rates are pretty low. So it's like 1% of payroll or something. It's not a meaningful cost. but again, some of our contractor clients, they're paying five to ten to twenty percent on some of these class codes. And what that means, if you're paying a hundred grand extra of payroll, that could be 10, 20 grand of additional premium.
Aaron (21:05)
What's the rate for pickleball employees or pickleball players?
Brian Bollinger (21:11)
I don't know what the professional pickleball association rate is.
Aaron (21:13)
We've got to get insurance on you.
Brian Bollinger (21:16)
that's a different thing entirely. I I I got so many pulls and strains and things like that. probably my disability policy will pay out here pretty soon if I keep this up.
Aaron (21:25)
But you're on the clock when you're working, man. You know that that afternoon pickleball is killer. We're we're connecting, right? Connecting with referral networks.
Brian Bollinger (21:35)
Yeah, I don't know if six o'clock really qualifies for working hours, but nonetheless, yeah, I mean it is something to contemplate. one of the questions a lot of these companies have is do you sponsor sports or athletic teams? You know, and you think about that. It sounds pretty benign as a question for most people, but there is a question, honestly, if you have employees on a corporate softball team or a corporate pickleball team, God forbid, and they get hurt, is that a workers' comp claim?
Brian Bollinger (22:02)
And it's really unclear what the answer to that is. and so it sounds strange, even though you're doing the right thing, trying to help your clients out, your heat help your team out, you know, do the whole camera camaraderie thing. it does sometimes become an insurance thing too. So just be aware that I don't know the answer to that. You gotta you gotta really dig into your policy and each person's, you know, particular situation and specifics can influence how that will be treated in the courts.
Aaron (22:28)
And obviously as you grow as well, you as the owner become more and more important, whether it's you taking on more responsibilities, different responsibilities, or just your ownership and the culture that you've cultivated, that that's something that you have to think about yourself. You're not covered under that workers' comp policy. You've got to go get insurance for yourself now. You know, I mean, obviously it's it becomes bigger risk, a bigger, you know, burden to carry on your shoulders. you you've got life insurance because we're we're looking to grow. if something god forbid were happen during pickleball,
Aaron (22:56)
Would we be good then?
Brian Bollinger (22:58)
You might get double actually accidental death, maybe. You know, I don't know how the pickleball would kill me, but I digress.
Aaron (23:02)
yeah, so we're ready. We're ready.
Brian Bollinger (23:07)
But but but key person insurance, I think, is one of the things we're talking about indirectly here is a lot of our clients do have key personnel that if something were to happen to them, the business would really struggle to maintain. so just be aware of that.
Aaron (23:20)
And as you grow, those people are gonna probably take up even bigger roles and become more and more important to your business and what you're creating. And so it it becomes evident that in addition to all the standard policies that you should be having, all the other ones also are very important as well to to keep in consideration. yeah, I mean, truth truth bombs.
Brian Bollinger (23:40)
Yep, life, disability insurance, a bunch of things you can get. everybody's a situation's unique, right? You gotta have a holistic plan. You gotta be proactive. Don't wait for there to be a problem. Try to be in front of these things. Ask right tough, ask tough questions, share what your plans are with your your agent and broker team, make sure that everybody is on board and knows how best to serve you.
Aaron (24:00)
Yep, somebody's experience. All you can ask for. Dad, are we doing pickleball tomorrow?
Brian Bollinger (24:06)
maybe. I don't know. I might have to heal still from the last game, you know, you were pretty rough on me, but it was fun.
Aaron (24:12)
We are playing together.
Brian Bollinger (24:14)
Part of the time we were playing individuals. That was horrible. You were making me run all over the court.
Aaron (24:19)
Gosh guys. So sorry for those of you listening. My my dad is you know, pessimist when it comes to his outlook on pickleball and exercise.
Brian Bollinger (24:28)
Sounds good. Okay. Well thank you all for listening. Hope you guys have a great weekend, great day, great afternoon, and make your business better.
Aaron (24:34)
Make wow. Well yeah, happy holiday weekend to all you guys listening out there. yeah, thank thank you so much for your time.