Insurance Terminology
Partnerships with insurance brokers can sometimes expose small business owners to terminology they’ve not heard before. In this blog, we’ll be sharing some of the most common business insurance terms, together with a brief introduction to what they refer to, so you can be better equipped going into your next meeting with your business insurance broker.
Mod: Your company’s experience modification rating (EMR) is sometimes referred to as a mod. This value will tell you how your business measures up against industry competitors in terms of how many workers’ compensation claims are filed with your company and how much they’re costing you. Importantly, if this value is greater than 1.0, it may indicate a lack of particular attentiveness with regard to health and safety protocols in the workplace. Or, perhaps your Recovery at Work/Return to Work policy is lacking, resulting in larger lost-wage benefits. Further, a debit mod (greater than 1.0) goes hand in hand with a premium surcharge.
Unit Statistical (UniStat) Reports: As it pertains to workers’ comp insurance, Unistat Reports detail exposure, premium, and loss/claim information. This information is transmitted from your carrier to the rating bureau in what is called a UniStat Report, and is used to calculate your mod rating. It’s important that you and your broker work together to review all open claims and your EMR.
Waiver of Subrogation: This is a provision included in some contracts in which the insured waives the right for their insurance carrier to seek compensation for losses from a negligent third party. Conversely, insurance companies with a right of subrogation may seek to recover damages to cover their costs. A waiver of subrogation means the carrier is carrying more risk, and so an endorsement for a waiver of subrogation normally requires the insured to pay an additional fee on top of their standard insurance premiums. It’s important for you and your broker to work together to make sure you understand in each instance if your carrier will permit you to sign a waiver of subrogation, as well as the pros and cons.
Primary and Noncontributory Clause or Endorsement: This refers to the order that different or multiple insurance providers respond in the event of a claim, and is common within the construction industry. It ensures that one policy (the primary policy) provides coverage with other policies contributing only after the primary policy limits have been exhausted.
Fidelity Bonds: Every year, businesses stand to lose millions of dollars in revenue due to employee theft. Fidelity bonds function as a type of insurance to protect business owners from taking significant damages or losses due to the misconduct or fraudulent activities of employees. Fidelity bonds can be designated as first- or third-party, covering wrongful acts committed by employees and contractors, respectively. These bonds can be a critical element of your risk management plan, and it’s worth looking into the benefits they may provide to your business.
Nose Coverage (or Prior Acts Coverage): This type of insurance will help protect you against any claims made under a previous policy. Nose coverage provides continuity of coverage and eliminates gaps in coverage. Nose coverage is valuable for the protections it offers businesses against potential legal issues related to work performed in between carrier coverage, and can be less costly than tail coverage.
Surety Bonds: These function as a three-party contract between the surety, the principal, and the obligee. The surety promises to fulfill the debt, default, or financial obligations of the principal (or debtor) if the principal fails to pay or uphold the terms of a contract made with the obligee (or creditor). Surety bonds require that the principal repay the surety for any claims paid to the obligee, making surety bonds more like a credit line than a typical insurance policy.
Vicarious liability: Describes the responsibility you hold as a business owner for the actions of your workforce. Generally speaking, you are held responsible for the actions of your partners, employees, contractors, volunteers, and agents. The idea of vicarious liability is especially important when it comes to potential legal claims against employee misconduct such as sexual harassment, fraudulent activities, health & safety, and more - even if you were not directly involved, you are liable if you reasonably should have had knowledge of it. For example, you could be held liable for failing to perform a criminal background check on a candidate if they are hired and commit an unlawful act.
It is helpful when business owners understand the meaning of insurance terms when working with an insurance broker for efficient collaboration, and to ensure proper coverage. Please feel free to reach out if you are looking for an experienced insurance broker with a client-centric focus, as we would also be happy to put you in touch with trusted providers.
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