Mind The Gap
Workshop increases knowledge for both the inexperienced and the experienced
As the result of a Scott Addis sales workshop I recently attended, I’m going to detour slightly from the format of the usual monthly Mind the Gap column. Regular readers of this series know that we usually start off with a specific issue, review why the issue matters, then explore how to fix it. This month we will briefly look at and discuss why each issue is important.
If you ever have the opportunity to attend one of Scott’s workshops, I highly recommend that you do so, because you won’t be disappointed! The workshop I attended was hosted by Cincinnati Insurance and was an advanced sales workshop that brought value to newer producers as well as seasoned veterans. I came away from it energized and armed with some additional tools in my sales arsenal.
During part of the training, Scott brought up his “Top 21” list of most common coverage gaps. With his permission, I will explore some of the ones that jumped out at me, as I think this information will be quite beneficial to the newer producers in our industry.
Issue #1: Failure to properly list the named insureds
This seems simple enough, but this oversight can have huge ramifications. It is not unusual for different entities to own properties that are associated with one commercial lines account. Failure to properly list all of them as named insureds could result in serious issues should a property or liability claim arise.
In short, make sure that you carefully review who owns all the buildings, vehicles, etc., that are part of your commercial lines accounts, and list all the appropriate named insureds on the policy.
Issue #2: Protective safeguards endorsements
“As a condition of this insurance, you are required to maintain the protective devices or services listed in the schedule above.”
This sentence can be rather frightening if you don’t take the time to inform your clients that a protective safeguards endorsement (which typically starts off with this sentence) is part of their insurance policy. This endorsement actually creates two separate issues.
First, always check to see if your policies have this endorsement and, if they do, question whether it makes sense to require the safeguard that is spelled out in the endorsement. Sprinkler systems, fire alarms, and automatic commercial cooking exhaust and extinguishing systems are just a few of the items that you will see required on various accounts. In some cases, the requirement in the endorsement may not make sense, and you should discuss these provisions with your marketing representatives and/or underwriters, to see if they can be removed.
Second, in situations where this endorsement is applicable, make sure you notify your client of the requirement(s). The endorsement specifically excludes coverage in situations where:
The client was aware of a suspension of the protective safeguard and didn’t notify the insurance company; or
The client failed to maintain the protective safeguard when it has control over it.
You can’t control whether or not your clients will comply with these provisions, but you’ll certainly sleep better at night when you put the ball in their hands and make them aware of what is required.
Issue #3: Failure to add additional insured endorsements to liability policies
We could spend an entire column reviewing various additional insured endorsements and discussing the importance of adding the correct forms. (Now that I think about it, I might just add that to my list of future columns.) However, I’ll keep things at the 30,000-foot view for the sake of this column.
In short, make sure you know what additional insured endorsements are available in the marketplace and take extra care to use them properly. It’s very easy to make the mistake of not adding an additional insured to a general liability policy simply because the policy has a liability enhancement on it that includes blanket additional insureds.
Then what’s the problem? In some cases, there is only automatic coverage for certain specified relationships, such as owners or managers of premises, vendors, or lessors of leased equipment.
In most cases, these types of endorsements require that a written contract be in place between your client and the proposed additional insured. Don’t assume that there is always a written contract in place. If there isn’t, then you will need to add the appropriate endorsement for the specific entity requesting additional insured status.
Issue #4: Failure to include business income coverage for dependent properties
This is another coverage that is sometimes thrown in with some of the various commercial property enhancements that are utilized in the marketplace. But if your client has a substantial exposure in this area, there is an extremely strong chance that the enhancement endorsement won’t begin to provide enough protection.
Here’s a refresher for those of you who may not be overly familiar with this coverage: This is a time element coverage that protects your client in the event that one of their key relationships suffers a covered loss.
For example, if you insure a manufacturer who depends on a specific supplier for a lot of its raw materials, your client could suffer a severe financial setback if the supplier’s warehouse catches on fire. This endorsement will pay for any lost income (or for additional expenses, if extra expense coverage is included) incurred because of such a loss. Make sure your clients are aware that this coverage is available, as it can mean the difference between staying in business and closing the doors for good.
Issue #5: Failure to educate the client on employment practices liability insurance
Employment practices liability insurance should be a coverage that you automatically discuss with any of your clients, no matter the size of their business. The reason is simple: Every business has either an internal (first-party) exposure and/or an external (third-party) exposure.
Obviously, the premium for this line of business varies by type of exposure; however, it’s not nearly as expensive as it once was. For example, I recently added this coverage onto a directors and officers liability policy for a homeowner association that has 133 member homes in it. The annual
premium was $250.
What’s the exposure for that type of account? In their case, the third-party exposure is what took precedence. Let’s suppose a landscape contractor whom the association hired is working on the association’s property and makes inappropriate remarks to several women who are sunbathing at the association’s pool. Not only will the contractor potentially get sued, but the association might see a lawsuit, as well, because they hired the contractor.
Although the association might not end up having to pay anything in damages, the policy will cover the defense expenses resulting from the lawsuit. Defense costs for lawsuits alleging sexual harassment, discrimination, or wrongful termination can easily reach the six-figure mark.
After Scott reviewed his list of 21 coverage gaps in our workshop, he asked if anyone had any others that they would like to share. I raised my hand and brought up the Additional Covered Property Endorsement (CP 14 10).
This endorsement isn’t always offered by insurance companies, so check with each of yours to see if they utilize it.
This endorsement carves back coverage for some of the exclusions that are found in the commercial property form. For instance, you can add coverage for paved surfaces, retaining walls, and underground pipes and drains. I haven’t seen any of our insurance companies charge an additional premium for this coverage, but typically they will simply ask (or require) that you factor in the costs of these items for any commercial building or business personal property you are covering.
You won’t see a lot of claims paid out via this endorsement, but you’ll look like a hero in the event you do have a loss that is covered by it.
In summary
Unfortunately, there’s no magic solution to avoid some of the pitfalls associated with writing commercial lines insurance. However, I’m a strong believer in the value of continuing professional education. Taking advantage of any course that furthers your knowledge will help you in the long run, even though sometimes it’s tough to take time out of your schedule to devote to educational purposes.
Another useful tool for newer agents is coverage checklists. These will outline some of the coverages that are specific to the type of prospect or client with whom you are working.
Last, as I’ve mentioned before, don’t be afraid to lean on the seasoned professionals who work with you. This includes people at your agency as well as at the insurance companies you represent. If you haven’t figured it out already, insurance is an industry where you continue to learn new things no matter how long you’ve been doing it. And those of you who are willing to learn will reap the rewards in the end.
The author
Marc McNulty, CIC, CRM, is vice president of insurance operations at The Uhl Agency in Dayton, Ohio, and has been with the agency for 15 years. He divides his time among sales, marketing, technology and operational duties. Marc also serves as chairman of NetVU’s Young Professionals Chapter. You can reach Marc at
marcmcnulty@uhlagency.com
