Contractor Insurance Buyers - Understanding Loss Runs

by : Don Bury

This article is one of a series of tips to help business owners save large amounts of money on business insurance. Today, we are going to talk about loss runs, which are vitally important to any buyer of business insurance, who wants to save money. They are also known as policy history reports, but are more commonly called loss runs. This information applies to all forms of business insurance, including contractors general liability insurance.

What are loss runs? A loss run is simply a report from an insurance company showing claims you had for a particular policy. It should show the policy number, effective dates, and list for each claim a claim number, amount paid, amount reserved, amount incurred. It should show premium paid for the policy also.

Why are they important? Failure to obtain them at the right times is a primary cause for overpaying large sums of money. If you can't obtain your loss runs, no one can give you an accurate quotations.

Why is it difficult to get loss runs? Brokers know their clients cannot get competitive quotations without them. To avoid unwelcome competition, they rarely give them to clients voluntarily. Brokers often try do delay handing over loss runs to clients, and use the time to capture as much control of your renewal as possible. Brokers may find they can't get loss runs on policies you got through other brokers. The critical job of capturing currently valued loss runs 90 days in advance of your renewal routinely gets mishandled. Not making sure this is done is an expensive mistake that can also create unwelcome crisis as a renewal approaches.

What is the solution? Collect and organize the information necessary to secure your loss runs. You absolutely need a spreadsheet listing all the policies you have now, and all those you've had in the past 5 years. The table headers (in a row across the top) are as follows, along with explanations after the dash:

Inception Date - what date did the policy start?
Expiration Date - what date did the policy end?
Insurance Company - Exact name of insurance company.
Policy Number - Record it accurately.
Premium - use the final audited premium.
Total claims paid - amounts actually paid by the insurance company.
Total claims reserved - amounts not paid, but set aside in anticipation of being paid.
Total claims incurred - the sum of paid and incurred. Type of Coverage - Liability, Auto, Property, Excess Liab, Professional Liab, Workers Comp
Loss Run Contact - Name, phone, fax, email address of person who publishes the loss run.
Loss Run Valuation Date.- The date the loss run report says it is valued.

A good way to get this to happen is to ask your broker for it. Be alarmed if your broker cannot provide it to you. This is absolutely vital information your broker needs to effectively run your renewals. Insist that your broker put this together and deliver it to you. It is best to do this long before your next expiration date.

You want the policy history rows sorted first by line of coverage, then by inception date. That way you will see 5 years for each line, in neat chronological order. For each line, you can sum the premiums and the claims to see how much money you are making the insurance companies. It is usually a lot.

Summary: Failure to get complete loss runs on time is a primary reason for overpaying for business insurance. No one can accurately quote your insurance without currently valued loss runs. This means you have to get them every year, 60 to 90 days in advance of your expiration dates. Keep organized as I am describing, and you will avoid the following expensive mistakes:

1) Letting your broker think he or she has a monopoly on your renewal. When your broker knows you have all your loss runs currently valued, you can get competitive quotes. If you don't have them, you can't.
2)Emergencies caused by a loss run your don't have, that an underwriter requires. A missing loss run can cause a quote to be pulled by an underwriter which might have saved you money.
3) Getting ignored by underwriters, who view your applications for quotations as incomplete without the loss runs.