What Should a CFO Review Before a Commercial Insurance Renewal?

You're the CFO of an importing company. Business is good, revenue is climbing, your biggest customer is a national big box retailer. One morning, they ask for an updated certificate of insurance. Pretty routine. You forward it to your insurance broker and go back to work. The certificate comes back showing $2,000,000 of liability limits. Your contract with that retailer requires $5,000,000. So the retailer puts a hold on your account. They stop paying your invoices for products that you've already shipped to them. And they tell you that they won't do business with you until you provide the correct limits. Now, nobody got hurt. Nobody got sued. There's no fire, no lawsuit, no claim of any kind. But one certificate request froze your receivables and put your largest customer relationship in question. So what should a CFO review before a commercial insurance renewal? Well, in my mind, there are five things. First, your revenue and financial exposure measured against your current limits. Two, any material change in your operations in the last 12 months. Number three, your loss runs going back three to five years. Fourth, every sublimit and exclusion buried inside your major policies. And number five, where the insurance market actually is, so you know whether the terms in front of you are competitive. That's the answer. Now, let me show you what each one looks like in practice, because the gap between checking a box and actually doing this is where companies get hurt. Hi, I'm Gordon Coyle, and for over 40 years, I have worked with seven, eight, and nine-figure business owners, helping them navigate the complex world of business insurance. And I have seen every problem and costly mistake you can imagine. Here, I share the insider strategies and real-world solutions that protect your business and save you money. At most mid-market companies, the renewal gets handed to operations or facilities or an office manager or a controller. It comes back as a number. The CFO approves that number, and that's the entire process. But insurance isn't really an expense line. It's a contingent liability on your balance sheet, and its size is determined by documents that almost nobody in your company has ever read. During my career, I have audited hundreds of insurance programs for private equity buyers, strategic buyers preparing to purchase a target company, and for mid-market firms seeking a deep second opinion. Diligence-level work, company after company. The pattern that I see almost every time is identical. There's no renewal reviews. Limits that are set years earlier never get revisited. There's no process for determining whether those limits are even accurate. And these are not small companies, and that's the part that stays with me. So, let's get into this step-by-step. Number one, revenue and financial exposures. Your policy was priced around the financials you reported during your last renewal. If revenue has grown, if you've added product lines, if you've expanded into new states or countries, your exposure has moved. But your limits may not have moved with it. That importer that I opened with is a real account of mine. Revenue went from about $9 million to just under $15 million in the last two years. Their combined general liability and excess limit was $2 million, which was reasonable back when they were a smaller startup. But their customer contracts require at least $5 million in limits. Nobody's looked at this in years, and when I found it doing a quick review before we'd ever gotten into a formal analysis, no claim ever tested those limits. The contract tested them. That's what CFOs constantly underestimate. Your limits don't just get tested by lawsuits. They get tested by every customer contract, lease, and vendor agreement that you sign. As you grow your revenues and payroll, your limits of coverage should grow as well. Not just for general liability and umbrella, but also for limits of management liability, cyber, and likely your property limits as well. Pull your five largest customer contracts and check their insurance requirements against the actual limits that you have. If there's a gap in either place, that conversation happens now, not after you've signed it. Number two, material changes in operation. And this one sounds obvious, and it gets missed constantly. Did you acquire another company this year or launch another product? Change how you distribute your products. Start doing work in a new state or a new industry, or as I mentioned earlier, a new country. Each of these can affect your coverage, sometimes dramatically. An acquisition creates a gap the moment the acquired entity isn't properly endorsed onto your policies. A new product line can trigger product liability exposures to your policy that it was never designed to handle. Your broker should be asking without being prompted, but you're the one who sees the whole picture. Write down every operational change from the past 12 months and put that list in front of your broker before the renewal. Number three, claims history and loss runs. If you're watching this video, you've likely had a question mark in your mind. So my recommendation in step three is to request loss runs from your broker, meaning your claims history, going back three to five years. Ask now, don't wait for the renewal date to come around. Your loss history drives what carriers will offer you and at what price. And frequency claims hurt you more than most people expect. A pattern of small claims usually does more damage than one large one. Know your own story before the market tells it to you. Number four, limits, sublimits and exclusions. This is where I spend most of my time with CFO clients, and it's where the real money hides. You know your headline limits. What you probably don't know are the sublimits buried inside those policies or worse, the exclusions that carve out something you do every day. I'm working on an account right now with $4 million in business personal property limits and no business income coverage. None, not a low limit, not a long waiting period. It simply isn't on the policy and it hasn't been for years. The client is with a top 10 broker and over multiple renewals, no one has ever raised this question. Think about what that means. A fire takes out their facility and the property policy will rebuild the building and the personal property, but it does nothing for the 12 to 18 months of lost gross margin during that downtime. Nothing for the payroll they keep covering. Nothing for the customers who go to a competitor and never come back. Nothing for all the overhead expenses. The building and the contents get replaced, the business doesn't. And this is the number one reason for bankruptcy following a large claim. Go line by line through every sublimit and exclusion on your major policies with your broker. It's going to take a couple of hours and compared to what you just heard, it's the cheapest few hours on your calendar. Now, number five, market conditions and benchmarking. The commercial insurance market is never static. And right now it's moving in two directions at the same time. Property and cyber pricing has softened. Carriers have capacity in those lines and they're competing for your business with some exceptions. Casualty, meaning liability is going in the other direction. Umbrella and excess liability limits have been climbing rates for years and they're still climbing and capacity there is tightening. Business auto is even worse and there's no end in sight for that pricing structure. Here's the trap in that for a CFO. Your total premium can come down while the most important part of your program quietly gets worse. Property drops, cyber drops. The number on the summary page looks like a win. And meanwhile, your umbrella went up and the carrier either cut the limit they're willing to write. And if you're looking at the total, you'll miss it. So ask your broker for a real market analysis, not just the incumbent's number. So those are the five. Revenue and exposure against limits and your contract requirements. Nothing on that list is exotic. It's the same rigor you would apply to any other financial decision of this size. Insurance is one of the largest unmanaged risk items on most mid-market balance sheets. And as the CFO, you're the last line of defense for it. If you're not certain your limits match what your customer contracts require or whether you even have what you think you should have, that's not a question you want to answer during a loss or on a Tuesday morning certificate request. There's a link in the description box below. Click that and let's find 30 minutes to spend together going through your program before you sign any renewal documents. No pressure, just a straight look at where you actually stand today. The goal is to help you be a more informed buyer so you can make the right decisions for your company without a lot of hype and nonsense. Subscribe to my channel for more info like this. I cover this kind of thing a few times a week. Drop me a question in the comments if there's something you want to tackle and hit that like button. Thanks for watching.