Bank Loan Versus Insurance Policy

Getting a bank loan is not much different than getting an insurance policy. There is an underwriting process that takes place for both transactions. Most people are very careful when trying to get a loan to make sure they have everything in order and complete for their submission. Unfortunately, when it comes to procuring an insurance policy most people approach that transaction in a haphazard manner. Using the same careful and complete presentation that you would use when you submit your documents to the bank in trying to secure a loan is almost the exact same process you should use when trying to get insurance proposals for your small business. The three C's of banking, character, credit, and cash are also applicable in the insurance underwriting process. Your character can be manifested in many areas throughout the insurance underwriting process. If your company has a frequency and/or severity problem with regards to claims, losses, and lawsuits, that will affect an underwriter's view of your character in the underwriting process. If your company has high employee turnover and/or poor employee morale this will also have a negative impact in the underwriting process and thus will have a

negative impact on the pricing of your policies. Just like in banking your credit score plays an important part of whether or not you will be able to secure a loan for your project. While it does vary by state most insurance carriers are running your credit score for both personal insurance and commercial insurance policies that you're trying to secure. In regards to personal insurance, normally the insurance carriers do not have the ability to surcharge their policies for bad credit scores. Therefore they normally just will decline you as a risk that they are not willing to take on. On the commercial lines side, most of the carriers have the ability to surcharge their pricing other commercial policies based upon credit scores. They can either decline you or increase your pricing because of the perceived risk of your low credit scores.Cash or cash equivalent is important in running any business. If in the underwriting process the carrier discovers negative cash flow's or low or nonexistent cash reserves they typically will decline on issuing a commercial policy. The rationale comes from the under writing principle of that they do not want to create a moral hazard whereby the owner intentionally destroys insured properties in order to collect an insurance payout due to financial stress. The risk management tip of the day is that as you approach insurance carriers for proposals use the same process that you would use in obtaining a bank loan and you will have much greater success in your endeavors.