Shop for Coverages that Uniquely Fit Your Needs

About seven years ago, Larry Trapani’s neighbor, a commercial lender specializing in the Laundromat industry, began giving him names of clients who needed insurance for closings. A new market opened up for Trapani.

Trapani is a senior partner with Brooks-Waterburn Corp., a New York independent agency that represents more than 15 insurance companies with clients throughout the United States.

“After we wrote a number of these [Laundromats], we developed a certain expertise in this line of business,” Trapani says. After visiting numerous laundries, and learning about the business, he says he became an expert in the industry.

In 2007, the Laundromat Success Program was developed, which included coverages that Laundromat owners need to protect their business, he says.

Trapani offers some advice to both newcomers and veterans shopping for laundry insurance.

ASKING THE RIGHT QUESTIONS

Looking for insurance information from trade associations is an option, but be careful, however, because certain associations also sell insurance, he says. “Their opinions may be a bit biased.”

Don’t be afraid to ask competitors who they use, and if they are happy with service, price and coverage, he says. “Word-of-mouth, sometimes, is the best resource.”

Use the Internet. “If you Google ‘Laundromat insurance,’ you will see a series of insurance companies and agencies that specialize in the Laundromat business.”

When shopping, he suggests the following questions:

• Ask the company how many Laundromat owners it insures. Ask for references, and be sure to get the names and phone numbers of at least five Laundromat owners who the company insures. Chat with these people and see if they are happy with the service.
• Ask what specific coverages are necessary for a laundry. “The agent or insurance company should be able to rattle off four or five important coverages that are specific to the Laundromat industry.”
• Ask if the coverages are written on a “replacement cost basis” or “actual cash value.” “‘Replacement cost means that if there is a loss, there will be no depreciation in the settlement of the claim. Actual cash value means that the insurance company will take depreciation,” he says. “For example, if your washers and dryers are five years old, the insurance company will depreciate the value of the machines by five years. If you have a loss, you will get nowhere near what you expect. This could be devastating to your business.”
• Ask the company if it is an admitted carrier, and is licensed to do business in your state. A nonadmitted carrier can do business in your state, but if there is a problem, the state insurance department can’t force the insurance company to do the right thing, he explains. Also, if a state-licensed carrier goes broke, your claim payment is protected by the state. “Sometimes you have no choice but to do business with a nonadmitted carrier, but it should be avoided if possible.”

Check the “health” of the insurer, he adds. “The rating of a company measures the company’s ability to pay claims.”

The best source of rating the financial health of an insurance company is A.M. Best, he says. “My suggestion is to do business only with a company that has a financial rating of A- or better. A+ is the highest rating.”

Check the rating at every renewal time, he adds. “Ratings can change constantly.”

INSURANCE SPECIALISTS?

Trapani emphasizes the importance of doing business with an insurer that has industry-specific experience. “What you need to understand is that this class of business is relatively easy to write. Most major insurance companies will write Laundromats, but are they qualified? They may not have the right product for you to adequately protect your business. More importantly, the agent who doesn’t have the expertise may not ask the right questions to tailor the right policy for you. Simply comparing prices and going with the lowest-cost quote could be disastrous.”

Think about the following special coverages:

• Buildout — This is the cost of construction that goes into opening a Laundromat. Often, these costs are $75,000 to $100,000 for an average store.
• Customers’ goods — Do you offer drop-off service? If there is a fire and customer clothing is damaged or lost, you may be responsible for replacing it.
• Hired and nonowned auto — If you do deliveries with a vehicle that is not owned by the Laundromat and there is a loss, the business may get sued. This coverage protects the corporation from this type of loss.
• Business interruption — This covers your continuing expenses and lost income if you are closed for a period of time after a loss such as a fire. This can be just as big a loss as the fire itself. “Consider that [your store] could take up to six months to rebuild and reopen after a loss. With no income coming in, you have continuing expenses such as loans, taxes and salaries. Potential profit is also lost. Business interruption will pay for all continuing expenses and lost profit.”
• Workers’ compensation — By law, in most states, if you have employees, you are required to carry workers’ compensation insurance. This covers the employee in the event he/she is injured on the job. It covers medical payments and lost wages. “This is one of the most omitted policies with Laundromats.”

AVOIDING MISTAKES

“Ironically, the most knowledgeable people [about insurance] are those who have suffered a great loss, and perhaps were not adequately protected. I guess they learned from their mistakes.

“The biggest mistake I see is owners only purchasing insurance that lenders require. I call this the ‘washer/dryer insurance trap.’ Typically, a lender might lend them money for the purchase of washers and dryers. The lender insists on insurance to cover the loan. What owners fail to realize is that they have a significant investment in areas other than washers and dryers, such as buildout, inventory, vending machines and other contents. Sometimes this can amount to more than $100,000 in value per store.

“By just insuring the amount of the loan, this leaves the owner self-insuring for a significant amount of money. In the event of a major loss, they could lose the total investment and never reopen!”

COPING WITH THE TIMES

Trapani sees people shopping for better prices not only in insurance, but in everything else. “It pays to shop around every few years. Sometimes there are dramatic differences in rates that one insurance company will charge.”

More specifically, in these times Trapani sees owners shying away from workers’ compensation. “This could be a big mistake. An injured worker who is not protected by workers’ compensation can make a great deal of trouble for you.” This could mean reporting you to a number of governing agencies, fines, penalties, and even the threat of a shutdown, he says.

“Workers’ comp rates have gone down dramatically in most states, and are no longer a major expense. The average store can be insured for under $500 per year.”

If you’re looking to save money, consider a higher deductible, he advises. “The difference in price between a $500 and $2,500 deductible can be up to 20 percent. Besides, it is not in your best interest to put in a $500 claim. In the long run, the insurance company takes a dim view [on the $500 claim], and it could raise your rates.”

Proper security can also save you money. “Many companies give credits for alarm systems, sprinklers, and other security measures.”

THE BOTTOM LINE

“My best advice to laundry owners is to first fully understand their maximum probable loss. How much are the washers/dryers to replace new? How much is the buildout and other contents? If the place is burned to the ground, what would it cost to put your Laundromat back as it was, just before the loss?”

If you know the answers to these questions, you should know how much insurance you need, he says.

“Obviously, price is a consideration. To keep the price low, raise your deductible and ask what credits you qualify for.”   

If you have any insurance questions or comments about this article, contact Larry Trapani at 888-997-9801, ltrapani@brookswaterburn.com, or check out laundromatsuccessprogram.com.