Guides
Part of Insurance by Industry: What Actually Decides Your Risk
Before you act on an insurance by industry review, check your policy against your business
Insurance by industry review in five steps: describe your business, check the class and policy, revisit each exposure base, reconcile contracts, write to the broker.
Each year, before you act on an insurance by industry review, ask not whether your policies remain in force, but whether the business the insurer thinks it insured is still the business you run.
A service gets added because a customer asked, a van gets bought, and a job is taken in the next state. None feels like an insurance event at the time.
The review runs on documents you already have and takes an afternoon.
What to take away
- Start with what you actually do, written from scratch, and compare it with the description of operations on the policy afterward.
- The classification on the declarations page is the single most consequential line in the file, and it is the one nobody checks.
- Every line of cover is measured against a different exposure base, so the review has to visit each base separately.
- Send the broker a list of differences rather than a question about whether everything is fine.
Step one: describe the business from scratch
Do not open the policy yet. On a blank sheet, answer these about the last twelve months.
Describe the business from scratch
- What do you sell, in customer words?
- What do you touch that belongs to others?
- Who comes onto your premises?
- What do you leave behind after a job?
- Who works for you, in what roles?
- What do you drive, and who drives it?
- What information do you hold, about whom?
Then add three more: what is new since last year, what has grown, and what you stopped doing.
Step two: read the declarations page against that sheet
Now open the file. The description of operations and the classification are how the insurer understands the business, and the reasoning behind that is set out in the industry guide, titled Insurance by Industry.
Declarations page vs. your sheet
Declarations page
- Class
- Class code or description
- Operations
- Description of operations
- Named insured
- Entities listed
- Locations
- Sites and territory
Your sheet
- Class
- Business you actually are
- Operations
- Every activity on your sheet
- Named insured
- Added, dissolved, renamed
- Locations
- New, closed, or missing states
The class. Find the class code or class description on each policy. Ask the broker what it means in words. Write the answer down beside the class code.
The description of operations. Compare it, sentence by sentence, with your sheet. Anything on the sheet that is missing from the description is an activity the underwriter did not price. What matters is not whether it sounds important, but whether it is there at all.
The named insured. Entities added, dissolved, or renamed in the year, and whether each appears.
Locations and territory. New sites, sites closed, and any work performed in a state that does not appear anywhere in the documents.
Step three: visit each exposure base
One number does not describe the business, because each line is measured against something different. Take them one at a time.
Recheck each exposure base
- General liabilitysales or payroll basis
- Workers' comppayroll splits and states
- Propertyvalues, contents, property of others
- Commercial autovehicles, radius, cargo, drivers
- Professional and cyberadvice, data, uptime
Visit each exposure base
| Line | What to recheck this year |
|---|---|
| General liability | Sales or payroll as the rating basis, and whether completed work is contemplated |
| Workers' compensation | How payroll splits across job classes, and any state you now have people in |
| Property | Values, contents, stock, and property of others in your care |
| Commercial auto | Vehicles owned, hired, and non-owned, plus radius, cargo, and drivers |
| Professional and cyber lines | What you advise on, what data you hold, and who depends on your uptime |
The workers' compensation row deserves separate attention. Class assignment follows the work each person does, not the trade as a whole.
It is one of the few places where your own records are the evidence. OSHA's injury and illness recordkeeping material cross-checks whether your work and injury records match what you tell an insurer. In most states, workers' compensation class codes come from NCCI and its Scopes of Basic Manual Classifications.
Step four: reconcile the contracts
Collect every agreement signed this year that mentions insurance: customer contracts, subcontracts, leases, and finance agreements, and list what each requires.
Then check each requirement against the schedule of forms and endorsements, not a certificate. A certificate represents the policy; the endorsement is the policy, and that distinction and the checking order are in the renewal reading guide, titled Quotes and Renewals.
Step five: the letter
Send the broker the sheet, the differences, and the contract list, and ask for four things in writing.
Four things to ask in writing
- Classification each market proposes, and why
- Every activity contemplated by operations description
- Which endorsement delivers each contract requirement
- What the insurer declined to quote, and why
- The class code or class description the insurer applied, in words.
- Whether each correction you requested was accepted, and the insurer's reason if not.
- The forms and endorsements in force, listed by number and edition date.
- What the insurer declined to quote, and the reason it gave.
That last question is the one that reveals most. A market that declined part of your operation has told you where it thinks the risk is, and it is worth knowing before you find out another way.
If the broker disagrees with a class correction you requested, ask for the reason in writing, and ask what the insurer would need to change the class. If the answer is still no, ask the insurer directly through the producer of record, or ask your state insurance department how classification disputes are handled.
What the review is really testing
Underwriting is the process of deciding what to accept and at what price, based on what the applicant said. The review is the annual act of keeping what the applicant said true.
That is why the finding is almost never a coverage gap in the abstract. It is almost always a sentence that used to describe the business and no longer does.
Where an answer turns on state rules, your state insurance department is the authority on the insurance side. The California Department of Insurance, for example, publishes consumer guides and rate filing information.
Where it turns on a contract you have signed, the person to ask is a lawyer who reads contracts, and where it turns on which cover fits, a licensed broker who has seen your sheet.
Common questions
How is this different from reading my policy?
The order. Reading the policy first anchors you to the insurer's description of the business. Writing your own description first means you notice what is missing rather than agreeing with what is there.
My trade has not changed. Do I still need to do this?
The trade rarely changes. The activities inside it do, and the review is looking for those. A new service line or one out-of-state job is enough to matter.
Who should do it?
Whoever knows what actually happens day to day, with the person who signs the applications reading the result. The broker's part comes last, once there is something concrete to react to.
What if the classification turns out to be wrong?
Say so and ask for it to be corrected rather than leaving it. A wrong class discovered by an audit, or after an incident, is a worse conversation than a wrong class you reported yourself.
