- THE MAGAZINE
Let’s face it: insurance is one of the necessary evils of doing business. When those statements arrive, no one jumps for joy shouting, “My premiums increased! My premiums increased!” But to ignore the necessity of proper coverage is folly, to say the least; one claim later, the uninsured operator may find him or herself filing for bankruptcy.
Instead of taking the usual tack of speaking with insurance companies and agents to get their take on what is and is not important when it comes to insuring the cleaning professional, ICS decided to ask a couple of experienced professionals what steps they take when it comes to protecting their business, what they’ve learned over the years, and what they’d do over if they could turn back the clock. Aaron Steinblock founded Cameron, Wis.-based Triple A Maintenance, Inc., in 1989 while a sophomore in high school, and has watched it grow from a small janitorial firm to a full-faceted cleaning and restoration company. Aaron carries a multitude of certifications including Master Cleaner/Restorer, as well as CE Instructor for several national insurance carriers. Bill Martin has owned All Pro Carpet Cleaners in Deland, Fla. since 1986. Bill graduated from West Virginia University in 1971 with a BS in business administration.
ICS: Since you first opened your doors, how have you seen the issue of insurance affect the way you do business?
Aaron Steinblock: When I first went into business, I was a solo operator doing office cleaning. I didn’t have a need for extensive insurance. If I remember right, I paid around $200 for a $300,000 general liability policy. As I grew, so did my insurance needs. Larger projects required larger limits. We soon saw requests for $1 million in coverage, then $2 million. Various additions to the company (new office, vehicles, and equipment) required additional insurance to cover their values. And as we added services that we offered, we had to adjust, and in some cases completely change, our insurance coverages. When we entered the specialized fields of water damage and mold remediation, the tables turned completely. For the first few years, our General Liability carrier allowed us to perform these services under their policy. However, as the attitude of the public became more and more litigious, our GL policy soon had to be supplemented with a CPL, Commercial Pollution Liability Policy.
Along with the needs for additional insurance, we also had to take on more and more paperwork, documentation, and reporting in order to keep up with the changing needs of our insurance company. Our business auto policy now requires DMV checks on all licensed drivers. Our Workman’s Comp and Liability Policies ask for drug testing of all employees. When performing water and mold remediations, documentation must be kept of all drying conditions, pre-existing problems, and negative-air readings to ensure we are following correct protocols. And our office is now visited every year by several auditors who monitor our books for correct work comp filings, as well as general receipts for our liability policies. All of this adds a significant workload to our office and accounting staff.
A final issue I have noticed is the dramatic gap between those companies who are adequately insured and those that aren’t. Our current insurance premiums for one year are nearly 200 percent of the gross receipts from my first year in business. Those costs must be worked into our pricing. I have found it increasingly annoying to bid against companies that don’t have appropriate insurance and therefore are able to undercut bids.
Bill Martin: I have always carried general liability and felt it to be a necessary cost of doing business. When I was a solo owner-operator with no employees I could eliminate the workers comp, but as the business grows, that is a cost increase I have found necessary to include, not only as a responsible employer but also because more commercial clients require these proofs of insurance in order to do business with them. Thus, my overall cost of doing business is greater than some owner operators who carry only vehicle insurance. This puts pressure on me as an owner of a two-truck business to make sure I direct my marketing to the “Mercedes” client who wants the professional cleaner. Recently, health insurance for employees has become more of an issue and something I didn’t think much about 20 years ago.
ICS: With regard to insurance, for you, what is the one issue that “if I knew then what I know now…”?
AS: Read your policy and ask questions. Don’t just take an agent’s word for it. Work with an agent that specializes in commercial policies, or at least has an extensive knowledge of it. The only thing worse than not being insured is thinking that you are adequately insured, paying the premiums, and then not having the right coverage. There’s a famous saying that if you set yourself up with the wrong insurance you are “covered just enough to get yourself in trouble”; you have enough coverage on paper to land a job, but not enough to protect yourself or your customer if and when a problem occurs.
BM: Make sure you keep up with your coverage for your “tools of the trade,” such as equipment sitting in the back of your unlocked truck while you’re inside cleaning. Keep your equipment listed and covered. Business interruption insurance is something we often don’t think about, but even though our “stuff” is insured in case of a fire or hurricane, it may take weeks or months to get back up and running, and usually our other obligations don’t wait. Finding a temporary location, working with a loss of records, trying to get equipment/vehicles repaired or replaced can take some time and the added stress of no income can be alleviated with business interruption insurance.
ICS: There are a lot of insurance products and packages out there. In your opinion, what coverage must every cleaning and restoration professional be sure they have?
BM: General Liability with Care Custody and Control – hard to find and sometimes you have to seek out agents who are more familiar with this type of policy. As far as equipment coverage, this can be confusing; your vehicle insurance does not always cover your tools of the trade. This is usually covered by a rider on your general liability policy.
AS: General Liability, Bonding, and Workman’s Comp. All commercial contracts will require these policies as a minimum to work for them. And in some states, these are required by law.
Unemployment. I really don’t count this as insurance. It’s more like an involuntary contribution to a non-refundable, non-interest earning bank account. However, it is a part of business and must be considered.
Property coverage. Auto, Office, and Inland Marine (equipment) insurance is a big variable; you aren’t required to have it if you don’t carry a loan on these items. However, the cost for this insurance is low compared to the replacement costs. Most every state will require you to carry a minimum amount of vehicle insurance.
Commercial Pollution Liability. This policy would only be needed if you are involved in water or mold remediation or some other potentially polluting service. Some companies are now looking to lump fire damage in with these also. I think this is the largest area that most contractors are fooling themselves into thinking they have coverage when they really don’t. A large number of restoration professionals think that their GL policy is protecting them. As a good rule of thumb, nearly all GL policies exclude this kind of work, and will actually drop you if they find out you are engaged in it. The very few that do still include this will soon be ending their coverage. And many contractors that have bought “discount” CPL policies may be surprised to find out that their policy offers them no protection whatsoever.
All of the above policies are there as a protection for others. They exist so that your customer is able to recoup damages and expenses in the event that you or your crew screw up and do something wrong. And it is very important, and the moral thing to do, to have coverage that adequately covers these people. However, I am also a very firm believer in paying yourself first. Therefore, I feel that a solid Health, Life, and Disability policy should be part of any business owner’s arsenal. This policy is solely for you and your family. These coverages can be expensive, but they really are the most important policy that we should all carry.
ICS: Taking it one step further, what coverage, if any, do many professionals have that they could do without? Is it possible to be over insured?
AS: I’m sure that there are some wild and crazy “out there” policies that are completely worthless to us. However, I have never run across a company that was over-insured. I would venture to say that the majority or companies in this industry today are under-insured; even grossly under-insured.
Work comp, Unemployment, and most GL polices are based on receipts and payroll and will be audited and adjusted annually. I do recommend that if your insurance company doesn’t already annually audit your accounts and policies, then you do it yourself. If you are underinsured, it’s better to catch it now. If you are over-insured, you can then make the necessary adjustments. Monitor your auto and equipment policies on a regular basis as their values fluctuate more than anything else in our business. And be honest with your insurance company when declaring your business activities; if you do just a little bit of water damage work, don’t lump it in under your carpet cleaning to get a better rate. If a problem comes up, and it will, you are placing yourself in a seriously exposed state.
BM: I’m not sure we can be over-insured. When you just start out you may not have as many assets to protect, but you are probably least able to handle the unexpected costs (sometimes in the thousands) of all the things that can go wrong. It hurts when I get the insurance bills and write the checks, but at least it’s planned for and I get peace of mind, knowing I have everything as well covered as I can. Employees (and I) make mistakes, equipment fails – since 1986 I have only had to use my general liability policy three times, but have never regretted having it. If you don’t do high-end residential or much commercial work, you might carry lower limits and save money there.
ICS: For a newcomer just starting to shop around for insurance, where would you suggest they start, professional to professional?
BM: Your relationship with your insurance agent may be as important as your relationship with your banker. Find out what your present agent offers and ask who to go to in case they don’t offer the coverage you are looking for. The agent who writes my homeowner’s policy referred me to an agent in another company in our community who specializes in business insurance. I didn’t know this new agent, but was steered in the right direction by someone I already trusted in the same field. I didn’t know another cleaner in our area to ask, but if you have a good relationship with another cleaner, ask them.
AS: Ask your fellow cleaners for referrals. Those who have been in this business for many years have probably been through several insurance companies and even possibly, several agents. An established, successful business will be a wealth of knowledge as far as specific names of companies that are good to work with and those that should be avoided. I have been assisted on several occasions by other cleaners in finding an insurance portfolio that works for us.
Check with your local trade association or certification body as these may have ‘group buy’ insurance options available at a considerable savings. And finally, as I mentioned earlier, find a qualified agent that understands your business and can guide you in the right direction. If you find yourself having to explain every aspect of your processes and routines, you need to look somewhere else. If you liked this article, circle 135 on the Reader Inquiry Card.