You may be asking yourself: ‘How can I, as a business owner or HR professional during this crisis, reduce my insurance expenses right now?’ Managing cash flow is at the top of people’s minds right now, and yes, there is an opportunity to lower your insurance expenses immediately.
Here are three things you can do right now to make sure you don’t spend a penny more than you need to on insurance. Contact your insurance provider today, and ask it to do these things:
1. Switch to a ‘Pay-as-You-Go’ Billing Method
In my opinion, pay-as-you-go, or PayGo, is the best billing method for small business workers’ compensation policies.
I’m sure there are instances when it doesn’t make sense, but businesses get a tremendous benefit from this billing method almost all the time. The real value here is that you only pay premium when you pay employees.
So, if you close for a day, week, or month and have no payroll, you don’t pay any premium. This is the single best way to manage work comp cash flow. As an added benefit, insurance companies that do this well virtually eliminate the need for an audit at the end of the policy term.
If you’re wondering how it’s all possible, traditional policies provide an annualized quote and are paid with installments (monthly invoices). When PayGo policies are calculated, they result in a “percentage of payroll” as the price.
- Traditional: $500,000 estimated annual payroll; $1,200/year = $100/month
- PayGo: Rate of 0.0024 ($1,200/$500,000); 0.0024 x payroll during the pay period = amount due
Assuming the estimated annual payroll equals the amount actually paid, a business pays the exact same amount per year. Your insurance company should easily be able to switch. This will immediately save you money.
2. Reduce the Revenue or Square Footage on Your Liability Policy
Insurance companies use different ways to price liability coverage. Some use square footage, and others use forecast revenue. Ask which variable your carrier uses. Then:
- If you’ve temporarily closed operations, remove that square footage from the policy. This is akin to taking a car off your policy while the driver is away at college and nobody will be driving it. Once you resume operations, you’ll want to have the square footage added back. If you reduce operations to, say, curbside service only, you should not remove this square footage.
- If you forecast lower sales, ask your insurance carrier to incorporate this new forecast in the price of your policy. The upside to this option is that you can continue to operate your business “as is” but with lower revenue. Read more here…
Source: HR Daily Advisor