Risk Managers’ Forum
By Paul Martin
WHAT ARE YOUR “MUST HAVES”?
Coverages to consider including when quoting accounts
Recently, while I was attending a CIC Institute, I was reminded of something very valuable that is offered to participants. The faculty are typically practitioners and because of their experience, they frequently share the lessons they have learned during their careers—both their successes and their mistakes. This particular faculty member was sharing what he considered “must haves” on various types of policies. He was referring to endorsements that expand coverage that may be needed in certain situations. He also shared stories from real life where aspects of customer losses had gone uncovered and uncompensated. Some of these uncovered claims were dramatic financial losses. Some had ended in an errors and omissions (E&O) claim being made against the agency.
Afterward, I was thinking about this list of “must haves” he had shared and why his recommendations were so important. Agents regularly do this, I know, but often they stop short, not offering an endorsement or policy for every possible situation. They may not offer the “all-risk” coverage for personal property on the homeowners. They don’t quote an equipment or flood policy but might only mention that one is available. Young producers, for example, are very attuned to any price sensitivity, not wanting to blow the sale by their quote being higher than the competition. When they are just starting out, they need the sales, and the income. That’s understandable. But this type of thinking can become a habit over time and as their career progresses.
Considering all of the options to insure a customer’s exposures, producers may want to rethink what they are routinely insisting on adding to customers’ coverage.
Larger, more complex accounts need more. And as a producer grows in their skill and experience, they should be evolving into a salesperson who convinces customers and prospects that they have much more to offer than competitive pricing. They should be their trusted advisor—the one who protects the customer’s business from threats on every side. The sale hopefully becomes more about protection.
So, as an agent, what are you adding to your “must have” list when you’re quoting an account? If you need some ideas, let me offer a few.
Ordinance or Law. If your customer suffered a property loss and the repair to property, or the resumption of their operations, was going to cost more, or last longer due to the enforcement of federal, state, or local ordinances, would the policy you sold them respond? Would the limit be adequate for the extra cost, or extra time needed to comply? The Insurance Services Office (ISO) provides endorsements to carriers that can do both. The Ordinance or Law endorsement CP 04 05, which applies to direct damage to the insured’s property, and the Ordinance or Law – Increased Period of Restoration CP 15 31, can both come to the rescue for insureds. And it’s not just about a suspension while the building and property is being restored; the customer may have obligations for relicensing of equipment or getting permits for resuming operations that may not begin until repairs are completed. Why not place this on the insureds’ property and business income policies every time? Imagine how hard the conversation would be if they needed it but didn’t have it.
Utility Services. Like the Ordinance or Law endorsements, Utility Services endorsements are available for the property and the business income forms sold to customers. The Utility Services – Direct Damage CP 04 17 will pay for damage to the property as a result of the utility interruption, such as spoilage, or products lost in-process. Remember, the loss to the utility infrastructure must arise from a covered cause of loss, such as windstorm or lightning. Similarly, the Utility Services – Time Element CP 15 45 endorsement will trigger the payment of lost income and extra expense on the Business Income form due to a covered loss to the utilities. These types of losses can be common and extensive after large windstorm events.
Difference-in-Conditions. Difference-in-Conditions policies are typically valuable for larger-value properties, and can cover otherwise excluded causes of loss excluded on ISO forms. These are non-standard forms created by the insurance carrier. They can cover flooding, earthquakes, or other unimaginable losses that are not covered by other property insurance policies.
Equipment policies. Equipment policies, otherwise known as boiler and machinery policies, provide a response to property losses that are typically not covered on property policies. The policies are designed to pay for loss from electrical injury and mechanical breakdown, both of which are excluded on the standard ISO property policy form. Equipment losses can be much more costly than customers may imagine. Many of these policies also offer coverage for the loss of business income and extra expenses during a suspension of operations because of a covered loss.
Crime coverage for employee theft. Employee theft is a risk for almost any organization, including small businesses whose owners may feel their employees are like family to them. Employee dishonesty losses can be devastating to a small business that may lack the cash reserves or credit line to survive a long-term embezzlement loss. This type of crime insurance is frequently a feature, at lower limits, or an option, on business package policies, but it can also be purchased on a stand-alone basis. The risk shouldn’t be overlooked by producers, whether the insured is a business or a nonprofit.
Cyber insurance. Cybercrime has become a multi-trillion dollar business worldwide today. Some insurance companies that sell cyber insurance report that they experience a cyber claim on as many as 25% of the policies they sell. That is an incredibly high claims rate. Experts say that for most organizations, it is not if but when they will be hit by a cyberattack. Insurance for these losses has definitely become a must-have in today’s operating environment.
Employees as Insureds on the BAP. The Employees as Insureds endorsement to the Business Auto Policy (BAP) extends the coverage provided on the BAP to employees who are potentially liable for injuries and damage when they use their personally owned auto on behalf of the business. The liability coverage would be excess over the employee’s personal auto insurance. While the individual employee should maintain limits for their own exposure to liability, helping them with excess limits may ensure their support and cooperation in the event of a big claim made against them and the named insured.
Considering all of the options to insure a customer’s exposures, producers may want to rethink what they are routinely insisting on adding to customers’ coverage. Maybe it’s one of the things above, or it may be something else, but regular evaluation by producers of what they can do to protect their clients is not just a good sales practice, it is self-defense against E&O claims.
The lessons learned from teaching professionals, such as those at CIC Institutes, are what can make the difference in the professional success of the individual and the organizations for which they work. Helping each other learn more is what it is all about, and our clients as well as ourselves are the beneficiaries.
Paul Martin is director of academic content at The National Alliance for Insurance Education & Research headquartered in Austin, Texas. Paul works to develop, maintain, and deliver quality educational programs for the organization. Paul has over three decades in the insurance and risk management industry.