Insurance Agents - Can your insureds recover from a business disaster? 50% of businesses do not reopen after a major catastrophe.

Dave Quinn Interviews Insurance Business Disaster Recovery Expert David Leng

In his soon-to-be-released book, “Insured to Fail,” author and insurance expert David Leng states that half of all businesses affected by an adverse event do not reopen or go out of business within three years – even if they are insured! Many companies lack a formal recovery plan. In discussion with Dave Quinn of the pollution insurance company NAESIP , Leng explains how by being a “trusted advisor,” your client will get more than just proper coverage, but also sound advice on how to survive when a catastrophe strikes.

A startling statistic in David Leng’s book cites industry research showing 50% of businesses do not reopen after a major catastrophe.

Leng further elaborated that “catastrophe” means the business has suffered a property loss destroying 98% of everything they had. And, the company was closed physically for more than 30 days.

The common question after such a loss is: Is the business properly insured? But, Leng suggests an additional issue should be: Is the business properly prepared to recover?

In most cases, the likelihood of a business surviving a catastrophic loss depends on a company’s answers to a combination of both of these questions.

David Leng said, “Too often, business owners have been taught the wrong way to buy insurance. As entrepreneurs, they tend to be risk-takers who minimize risk factors. They tend to justify the belief that something devastating is simply not going to happen to them. They feel that the odds of having a total loss are minimal. And as a business owner, they focus on revenue and expenses. They see insurance as just another expense they need to manage.”

Since many business owners have never experienced a major loss, they do not know what to expect when a catastrophe strikes. We cannot overstate the importance of having a properly prepared recovery plan supported by appropriate insurance.

Working with a trusted advisor who understands the importance of both is the best preparation when disaster strikes.

Should businesses have a step-by-step disaster plan in addition to understanding their coverage?

David Leng’s point is that a business should be aware that a great disaster recovery plan without proper insurance results in insufficient funds to execute even the best-designed plan. 

Conversely, a business with a comprehensive insurance program that lacks a solid recovery plan is also at greater risk of failure.

What makes a good agent/ trusted advisor?

A good insurance agent needs to dig in and understand the ins and outs of a client’s business to identify needs and exposures. Then, the agent can design the insurance program to meet those identified needs.

The agent can also offer expanded options based on their own experience or that of a trusted niche insurance professional specializing in the client’s business. 

Business owners want to make sure somebody has listened to them. They want a trusted advisor that has the knowledge and resources to help them navigate difficult times. 

Leng points out, “Most business owners spend more time screening a prospective employee than an insurance agent.”

It is critical for agents and business owners to mutually understand goals and objectives and commit to the time necessary to assess and build the business case properly. If an employer hires a poor employee, they can terminate and likely clean up the employee’s errors relatively quickly. If the agent does not do their job correctly, it can mean the end of their client’s business.

A good insurance agent/trusted advisor has a network of experts to tap into for expertise. That is especially important in areas like workers’ compensation, a specific industry specialty, or a unique coverage like pollution that NAESIP addresses. 

Working with a niche insurance advisor demonstrates the agent’s agility and resourcefulness. If the client’s needs extend beyond the agent’s expertise, working with a niche industry expert enables an agent to provide the best service.

What is the agent’s role when a client pushes back on a quote and ends up underinsured? For example, this often happens with pollution insurance. You show clients claim examples, but they don’t think it is going to happen to them.

This is an ongoing challenge for the insurance agent. Insurance policies and associated contract language are complicated to the average insured. 

Leng points out, “What business owners think is covered by their policy is not necessarily what is covered. For example, what business owners believe ‘replacement cost’ means is not the same as what it means in insurance terms. Business owners think their coverage is protecting their revenue. When really, insurance protects profitability and ongoing expenses, not revenue. This has huge implications if not understood properly. “

Once the business analysis is complete, the agent presents a proposal to a business owner based on the expertise of the agent and the agent’s expert resources. The decision to move forward rests with the now well-informed, business owner. 

What if the business owner refuses the coverage? According to Leng, “It is critical that the agent has a clearly worded acknowledgment that the agent offered coverage, and the owner decided not to accept it.”

The agent can plead their case for a coverage but it is the owner’s decision to accept or reject it. If the owner rejects the coverage, it is best to document the attempt to provide what you recognize as necessary. Sometimes doing this will result in a further discussion with the owner of the merits of the coverage. It is a best business practice for you as a professional.

Networking with “experts” is a great, but how else can an agent network to help business owners?

Even if a business owner buys insurance, they must manage their risk properly. A poorly run business with claim activity will end up paying a lot more for that insurance and possibly be less productive, too.

To help a reluctant business owner decide difficult insurance decisions, David Leng will ask one of his clients in a similar business to talk to a business owner. Sometimes they are more likely to respond to a peer versus the agent.

Perhaps someone who has experienced a situation and is in the same business can be very helpful. Sharing insurance experience is not a trade secret that business owners are hesitant to share, but it’s important to carefully select your referral.

Is it up to the agent to better educate their clients?

Yes. As with pollution insurance, many business owners do not want to buy the coverage they need because they've never experienced a major loss before.

It is an agent’s challenge as a “trusted advisor” to find a way to relate the importance of the insurance. The agent’s role is to help educate and enable the business owner to formulate a “recovery plan” ahead of a catastrophe.

David R. Leng is the author of the International Best Seller - The 10 Laws of Insurance Attraction, also Turning Premiums into Profits and Stop Being Frustrated & Overcharged (Year After Year By Your Workers’ Compensation Program). He is Executive Vice President of Duncan Financial Group and was awarded the Advisor of the Year for 2008 by the Institute of WorkComp Professionals and was requested to join the Institute of WorkComp Professionals faculty in 2012. David is a 30-year veteran of the Risk Management and Insurance industry.

 To learn more about NAESIP pollution insurance coverage, contact Dave Quinn at 908-256-6576 or [email protected]