Tree care is one of the most hazardous industries in the country, and insurance carriers price it accordingly. But hazard alone does not explain why so many arborists overpay, get denied or end up with the wrong coverage. The underwriting process is where those outcomes are decided, and most owners have no perception of how it works.

I’ve spoken with many owners who, because of these risks, feel they’re required to overpay or have even been denied coverage – but who is making that decision? The underwriters at each insurance carrier are the key decision-makers determining price, eligibility and the overall risk of your organization. Understanding their perspective can improve your position as your organization seeks to reduce insurance expenses and improve coverage.

How does an underwriter think?

Most business owners have never spoken to an underwriter; underwriters are employees of each unique insurance carrier. They’re not agents, brokers or adjusters. Their responsibility is to assess risk, decide whether to offer coverage and ultimately set the price.

• Underwriter: Works for the insurance carrier. Evaluates risk, determines eligibility, sets the price.
• Broker: Works for the insured. Advocates on their behalf, manages the underwriters and carriers, provides ongoing service throughout the life of the coverage.
• Adjuster: Handles losses after they occur. No role in pricing or coverage decisions.

Think of the underwriter much like a loan officer reviewing a lending application. In each of these scenarios, it’s important that the information at their disposal is accurate and trustworthy. They are reviewing your application, weighing your history and deciding whether to extend coverage and at what premium. It is important to understand that underwriters price for what they do not know. In tree care, where base assumptions of risk are already elevated, every piece of missing information will be filled with a worst-case-scenario assumption. Your mission is to give the underwriters a well-documented reason to alleviate their natural concerns.

With that foundation in place, the next step is to understand the specific factors underwriters weigh when your submission lands on their desk. These are the variables you can control, and the ones that separate a competitively priced account from an overpriced one.

Loss runs: Your insurance report card

Your loss runs function as your insurance report card. Every commercial insurance policy will keep an ongoing record of your claim history for that specific policy, including date of loss, type of claim, total losses incurred and whether the claim is open or closed. Underwriters today will most often require five full years of loss history on every commercial submission.

The most important points regarding loss runs:

• You are entitled to your loss runs. Your current broker/carrier must provide them upon request. It is best business practice to request them regularly and keep them readily available.
• Gaps create uncertainty. Remember, underwriters price for what they do not know. Missing loss runs may completely negate your submission or, at the very least, increase your premium.
• Frequency is the enemy. Many small claims are often rated more harshly than one big one. They are indicative of a pattern and suggest a big claim may be right around the corner.

What should I do if my loss runs are “bad?” What if I’ve had an employee get injured recently?

A claim or two is not the end of the world. Underwriters expect arborist accounts to have losses. What they are evaluating is the story behind the numbers and whether you have responded in a way that demonstrates professionalism and risk-mitigating decision-making.

A few principles to manage a tough loss history:

• Provide context and details of corrective actions. A claim with no explanation is just a number that scares an underwriter. A brief narrative, what happened and what you changed demonstrates intent to mitigate risk. If a fall led to a new fall-protection protocol, or a vehicle accident led to an MVR policy and telematics, say so. Underwriters price down for evidence that the underlying problem has been addressed.
• When a claim occurs, build the paper trail immediately. Write the incident up, formalize whatever protocol changed, log the retraining and date it. A year later, when you are trying to explain that claim to an underwriter, documentation is far more credible than a narrative cobbled together during the renewal process.
• Open claims carry reserves, and reserves are often set conservatively high. Work with your broker and adjuster to close open claims where possible, as an open file priced at its reserve can cost you. The goal should be to close claims as soon as possible.
• A bad year that is aging out of your five-year window is worth far less to an underwriter than a fresh claim. If you are coming off a rough stretch, your broker can help you decide whether to market aggressively now or wait for the worst year to roll off.

A difficult loss history is a hurdle, not a complete disqualifier. The owners who struggle most are not the ones with claims, but the ones who present those claims with no context or corrective actions.

Experience Modification Rating

Your Experience Modification Rating, commonly referred to as your mod or EMR, is a multiplier applied directly to your workers’ compensation premium. A mod of 1.0 means your loss history is average for your class. A mod above 1.0 means you are paying more than the base rate. A mod below 1.0 means your safety record has earned you a discount. On a significant workers’ compensation premium, the difference between a 1.2 mod and a 0.8 mod can be monetarily very significant.

Key points owner-operators need to understand:

• Your mod is calculated by the National Council on Compensation Insurance (NCCI) using three years of loss history, excluding the most recently completed policy year. The claims filed two and three years ago are actively pricing your policy today.
• Your mod is carrier-agnostic. It follows your business, not your broker or your carrier. Switching carriers does not reset it.
• Open reserves count. A claim that has not yet closed is included in your mod calculation at its current reserve value. Active claims management and working with your broker to close any open claims can have a direct impact on your number.
• A mod above 1.25 will disqualify you from certain carriers entirely. Preferred markets have hard eligibility thresholds. Mods significantly above 1.0 may preclude you from accessing workers’ compensation through the voluntary market, landing you in the Assigned Risk Pool, also known as the Market of Last Resort. Policies written through the Assigned Risk Pool are more expensive, are subject to additional fees and have limited options for financing.

Your mod is a crucial indicator. With disciplined safety protocols, claims management and a broker who monitors it proactively, you can improve your EMR over time.

More ways to demonstrate excellence

Underwriters are thrilled to see evidence of efforts to differentiate your business from others by investing in additional accreditations and safety measures. There are many ways to demonstrate a commitment to excellence and a culture of safety, including:

• Clean loss history (see Loss Runs section above!).
• TCIA Accreditation.
• ISA Certified Arborist credentials.
• CTSP designations.
• Written, documented safety and vehicle programs.
• Documented employee-safety training sessions and records.
• New-hire protocols:
  • MVR screenings.
  • Background checks.
  • An established program for drug and alcohol testing.
• Fully signed and executed subcontractor agreements.

Carriers operating in preferred markets use accreditations and safety documentation as criteria for premium credits. If you have made these investments, make sure your agent, underwriter and carrier are aware, or you are leaving money on the table.

Marketing and social media

One often overlooked underwriting input is your company’s public presence. Underwriters routinely review company websites. If your website advertises services your operation rarely performs or has no real experience in, that creates an exposure you did not intend to declare.

A hot topic these days is snow removal, a common off-season revenue generator for many arborists. Although many businesses may do some residential snow removal, a picture or indication on your website of larger scale, commercial snow-removal services will instantly swing an underwriter into the defensive position. Similarly, many arborists will have need for crane usage in their operation at times. Subbing out one or two jobs to a crane operator over the course of a year is very different from owning, operating and insuring crane activity on a regular basis. The lesson here is twofold:

• Ensure your website illustrates only those services you are regularly offering.
• Ensure the website truly reflects the scope of work by carefully selecting the wording and visuals that convey your operations.

Making sure your public-facing marketing accurately represents your operations can be extremely beneficial to your overall insurance program. Although it may be tempting to market your business in a way that illustrates extended capabilities, doing so may raise additional questions at renewal and remarketing time.

The perfect package

The final submission is the package of information your broker will send to underwriters at the specific carriers reviewing your business. Typically, a complete submission will consist of the following underwriting information:

• 90 to 120 days ahead of renewal.
• Five years of currently valued loss runs.
• Current and prior-year financial statements or revenue documentation.
• Payroll breakdown by classification code.
• Specific supplemental applications depending on business operations.
• Equipment schedule with values, serial numbers, year, make and model.
• Vehicle schedule with VINs, GVWs and driver list.
• Subcontractor sample agreement(s).
• Safety-program documentation, training records and relevant certifications.
• A broker’s narrative framing the account and its history of operations.

It’s not uncommon for owners and operators to feel overwhelmed by the amount of information required for the complete submission. They may ask, “Can’t you just quote it without this?”

The answer is no. And even in cases where a carrier might proceed without a specific piece of information, the answer should still be no. The entire purpose of the complete submission is to eliminate uncertainty from the underwriting process. Remember, every missing piece gets replaced with an assumption, and the assumptions will not be charitable. An incomplete submission gets priced for the worst version of your business.

Conclusion

Underwriters are making consequential decisions about your business based on a package of documents they may spend less than an hour reviewing. The quality of that package, and the broker who builds it, determines whether you’re priced as a well-run, professional operation or another high-hazard tree company.

William Hutchinson, CLCS, is a commercial insurance specialist with Tooher-Ferraris Insurance Group, where he focuses on the green and outdoor contracting industries, including tree care. He is an active member of the Connecticut Tree Protective Association, the Connecticut Groundskeepers Association, SIMA and ASCA. Tooher-Ferraris has been a TCIA corporate member since 2007.