Don’t lowball your limits. You might end up paying more during your audit than you thought because of it.
The story I have to tell is about a startup. I met with this client who had five thousand square feet of empty, I mean completely empty, workspace. There wasn’t even a chair for us to sit on. He was about to hire somebody, so we wrote a small worker’s comp and general liability policy. As the year went on, we kept increasing the payroll as his company grew. Then the end of the year first year arrived, and we did the audit.
You are probably aware that the renewal of the policy would occur before the audit is completed. We put in the higher Workers’ Compensation payroll and got a competitive renewal number, but the audit for the completed year was for more premium than the renewal. How could that be? It’s because when we started this policy with this tiny payroll number, we didn’t get a very good rate. The payroll went up and up as year one progressed. By the way, the sales numbers went up and up too which, in this case, impacted the Commercial General Liability premium as well…
The client wasn’t angry about it, but he was surprised. I told him, “Had we any idea that you were going to grow like this, we could have done things differently.” He had no idea either, and we hadn’t estimated these much bigger numbers early on; we just slowly grew into this thing. Kind of like the frog in the cold water on the stove never notices things warming up…
There might have been some things we could have done, but what I’m getting at is that we don’t want to lowball the numbers when we initially write a policy. Other insurance agents might just be looking for the lowest upfront price possible, but we want to talk to people in real terms and say, “I’m not interested in you paying more than you should at the start. But if you think you’re going to double in size this year, we can negotiate a better rate for you upfront.” That’s where our years of experience come in to help.