Contractor Commercial Insurance Case Study

In this instance, commercial insurance consultants MB Davis Group intentionally negotiated a large-deductible workers’ compensation option for its client. Despite it being a somewhat counterintuitive move, this ended up massively saving the client in money, time, and stress.

Get to Know the Client

In May 2024, MB Davis Group took on a new account. This client is a contractor operating in multiple states with several hundred million in annual revenue.

Like any contractor, this client is required to purchase workers’ compensation insurance. A bedrock of the early progressive labor rights movement, workers’ compensation has a long social history in the United States.

At its heart, workers’ compensation is the manifestation of a social contract. In simplest terms, that contract states that if you become injured while working, your employer will take care of you. They’ll do that by paying for a variety of injury-related expenses:

• Medical bills
• Lost wages
• Survivorship benefits
• Burial costs

Shouldering the Burden of Exorbitant Workers’ Compensation Premiums

Compared to others in the industry, this contractor client had an exemplary workers’ compensation record with losses considerably lower than the average contractor.

Even given that, the client was paying well in excess of a million dollars per year for their workers’ compensation insurance. That equated to roughly 0.5 to 1% of their bottom line eliminated by workers’ comp.

That’s obviously a large number for anyone, but because they did such a fantastic job of prioritizing onsite safety, that number felt even more problematic.

When MB Davis Group took over the account, the natural question was how to save money on that workers’ comp insurance bill. Unfortunately, though, based on the way the insurance industry prices out these programs, certain minimums must be met. Eventually you get to a point where you simply can’t lower your premiums any further.

Why Increasing the Client’s Deductible Proved the Best Path Forward

To save this client money, MB Davis Group had to get a little creative. The solution was a large-deductible workers’ compensation option.

Essentially, MB Davis Group worked with the insurance company and made a joint decision. Instead of the insurance company paying every claim, the client would pay the first $100,000 per claim. Given that arrangement, the insurance company would lower their workers’ compensation insurance premiums.

So, imagine a worker breaks his arm on the job and is out for two weeks. The client would pay for his:

• Lost wages
• Medical bills
• Physical therapy

Say the whole bill came to $30,000. The contractor would pay for this out of pocket.

But suppose another employee was permanently disabled on the job. Now you’re looking at claims in the $500,000 to $1,000,000 range. In that instance, the contractor would pay the $100,000, and the insurance would cover everything in excess of that.

In order to determine if this was a sound course of action, MB Davis Group initiated a data gathering and analysis effort. They combed through the client’s previous claims history and what each of those claims looked like. They then calculated what they would have expected to pay with the large deductible versus what they actually paid.

The consensus from that analysis was that putting in the high deductible would ultimately end up saving them a significant amount of money.

The policy change, however, was not as straightforward as that. Numerous contingencies and details needed to be factored into the negotiations:

• Deductible cap. Even though this client had a fantastic safety record, they needed to put in a safety net in the event of multiple accidents in one year. After working with the insurance company, their financial obligation was capped at four claims of $100,000 each. This gave the client additional protection in case they had an uncharacteristic multi-accident year.
• Collateral agreement. Because the deductible was so high, the insurance company needed a way to guarantee the client would pay. (These things don’t work on trust!) This involved a complicated, sophisticated collateral agreement, both for the relinquishing of assets and the recouping of them.

Suggesting this solution in the first place leaned on something fundamental about commercial insurance consultants. The tactics and specifics of the insurance plan should be the final piece of the puzzle. The fundamental role of a commercial insurance consulting firm is to understand the client’s business. Inside and out. When they know the client well, they are poised to come up with solutions and contingencies the client didn’t even anticipate.

Anyone can come in and understand an insurance policy. It’s a lot more involved and effective to understand the totality of what you’re dealing with and then make assessments and suggestions.

“With every client, I want to learn about them first. Starting with insurance can often bias the advice,” said Mitch Davis, founder of MB Davis Group. “I sometimes joke that I’m a psychiatrist for corporations. Clients come in and lie on my couch, and I find their vulnerabilities. Only after that process should we talk about insurance.”

Relying on an Excellent Safety Record Opens Up Financial Savings… and Minimizes Hassle

Because this client worked so hard to prioritize on-site safety, in the end, they were able to work in partnership with the insurance company to create a great solution moving forward.

This had two major benefits:

• Financial savings. At the end of the day, this program added tremendous enterprise value to the client because they were able to enjoy significant savings on their workers’ compensation insurance.
• Minimized hassle. As an ancillary benefit, this client no longer had to deal with the insurance company (and all the accompanying stress and headache) for every single claim. Unless the incident was really bad and the claims were high, the client would just write a check and move on. As anyone who’s been bounced from adjuster to adjuster can attest, getting rid of that entire layer of complication has tangible value.

Can a Commercial Insurance Consultant Find Unexpected Ways to Save You Money?

Raising a client’s deductible doesn’t immediately seem like the best way to save money. As this client found, though, sometimes it takes an expert who understands both your business and the commercial insurance industry to find those out-of-the-box solutions.

Is there room for improvement in your commercial insurance program? Not sure where to turn to find out?

Googling and general advice can only get you so far. If you want to talk to an actual commercial insurance expert (a real person in real time) about your specific company, book your no-cost consultation with MB Davis Group today.