Friday, October 16, 2009
Often people will spend thousands of dollars on major modifications to their home and not even consider if or how their insurance may be affected. If the modification includes any kind of structural modification or addition, there could be serious impacts to their coverage. This oversight could lead to serious complications later on down the road should some type of major loss occur and valuation questions start coming in to play.
Most HO policies are written on a Replacement Cost (RC) basis. As part of the conditions of the RC coverage it is incumbent upon the insured to maintain an accurate RC insured value; else they could be in violations of the terms of the contract and loss settlement penalties could be applied. For example, let’s say you have an insurance policy on your home with an accurate RC limit of $200,000 and a $500 deductible. In the spring you put on a $75,000 addition but fail to report the addition to your insurance company. The following fall, there is a major fire and the ensuing damage results in a $100,000 loss. When the insurance company adjusts the loss they note the addition and inform you they are going to apply a co-insurance penalty to the loss.
Co-insurance is the minimum amount of insurance on a % basis of the actual replacement cost value of the home you are required to carry in order to maintain the RC settlement option. This % can vary by insurance company and policy, but typically as it relates to HO insurance policies it is 100%. If you do not maintain the proper limit, the insurance carrier can apply the co-insurance penalty which as a factor determined by dividing the amount of insurance carried by the amount of insurance required. The factor is then applied to the amount of the loss to determine the actual settlement amount less your deductible.
In our example we will use a 100% co-insurance requirement. Therefore to determine the co-insurance factor we will take the amount of insurance carried - $200,000 and divide it be the amount required - $275,000. The resulting factor is .72 or 72% (200/275 = .72). We then multiply that against the amount of the loss, in this case $100,000, and subtract the $500 deductible; the result is a settlement amount of $71,500 (100,000 * .72 = 72,000 - $500 = $71,500). A $28,000 mistake that could have been avoided.
Besides the valuation pitfalls, there are many other reasons to contact your independent insurance agent regarding any planned renovations before you get started. Depending on the extent of the renovations and your insurance company, you may eligible for credits or a change in rating tier based on the specific company underwriting guidelines. You may need to add a specific rider to your policy or change coverage all together to allow for the unique exposures (i.e. Theft of Building Materials) related to building renovations. Your agent can assist you with the process of hiring a contractor, especially with regard to evaluating the contractors insurance as it relates to your specific project.
So before you pick up your hammer, pick up the phone and call you independent insurance agent. Spending a little time now can you save you immensely down the road!
Friday, September 18, 2009
A better time to evaluate your insurance coverage is at some point in the middle of the coverage period; when you can make a careful, fully informed assessment of your coverage needs. This should be a time when the insurance decision maker with the assistance of the insurance agent/risk manager can take the time to make a sound risk management analysis of their operations. I understand this is often easier said then done, but there is usually some point in the year that this can happen if planned for properly. The initial review can be somewhat involved, but if it done right the process can become fairly streamlined for subsequent years. Based on the complexity of the business, a complete risk management audit every 3 to 5 years is fairly adequate. In the intervening years one only need to review changes and trends in operations in order to make the necessary adaptations to the overall insurance program. The establishment of review protocols can assist this process greatly
The analysis concept itself is fairly straight forward; current and new exposures are assessed against established coverage to see if and where any gaps may be. Various alternative solutions can be investigated and discussed and applicable coverage can be adapted to meet the realized situation. This may involve simply amending policies that are already in place or seeking out new coverage through additional policies as needed. What’s more, in this manner premium dollars can be truly evaluated from a sense of priority as opposed to a sense of urgency often brought on by an impending renewal date. This also provides the additional bonus of knowing when it does come time to actually renew coverage and you decide to test the insurance market you can make an evaluation of competative alternatives strictly on price.
The bottom line is to get a risk management review process into your overall business planning and management activities. Making it part of your normal operations and moving it to a time when it can be given the attention it deserves will move you a long way along the road to a sound and secure business.
Wednesday, July 1, 2009
No matter where you look, listen or watch today, someone is warning you about Identity Theft. It is one of the fastest growing crimes, made even worse by today’s economic conditions. The Federal Trade Commission (FTC) estimates that over nine million people have their identities stolen every year.
ID theft can have serious consequences. Possible fall out to victims include denied loans, arrest for crime you did not commit, loss of job opportunities, lost time and money spent repairing the damage.
Here are 5 tips on how to protect yourself from this crime:
1) Know you own Credit Situation – Be sure of your own information so you can spot fraudulent behavior quickly. You can obtain your free credit report from all three (TransUnion, Experian and Equifax) of the major credit agencies buy going to http://www.annualcreditreport.com/ or calling 877-322-8228. You can verify all the information and make any corrections needed. Then stay on top of your situation by reviewing all financial account and billing statements very closely. Report suspicious activity immediately.
2) Protect your "Hard copy" information – Destroy all documents with personal information, including pre-approved offers, before discarding. Put all mail in US Postal collection boxes; do not leave mail in you mailbox overnight.
3) Protect you "Electronic" information – Utilize anti-virus software and firewalls. Do not us personal information for electronic ids or passwords (i.e. birth date, social security numbers, phone numbers, etc). Do not respond to spam or unsolicited emails. Be sure websites are trusted and secure before entering personal and financial data.
4) Subscribe to some type of credit monitoring service - Make sure you are checking your credit situation and receiving updates regularly.
5) Carry Identity-theft insurance. The coverage provides reimbursement for expenses resulting from the crime, such as phone bills, lost wages, notary and certified mailing costs and attorney fees. It is inexpensive and may be endorsed to your homeowners’ or renters’ insurance policies.
Do not take your identity or credit situation for granted. This is definitely a situation where a little prevention can go a long way.
Have a safe and Happy 4th of July! Please do not forget what this holiday is about and the people fighting for it!
Friday, June 19, 2009
Stuff I bring
The standard ISO HO policy provides coverage on a worldwide basis for your personal property up to the amount insured under your Coverage C – Personal Property limit. The only limitation to the amount is 10% of the Coverage C limit for property which stays at another residence, such as a second home or college dorm. It also includes guest’s property, so if family comes to visit you, or goes with you to the vacation property there would be coverage for their stuff as well.
Stuff that is already there
The definition of eligible property under Coverage C of the HO policy includes personal property owned or used by an insured. This would include the contents of a rented property such as a hotel room, cottage, condo, lodge, etc. As for coverage for the building of the rental property, coverage is a little precarious. There is no coverage for off-premises building under the standard HO policy, and under the liability or Section II coverage of the HO there is a an exclusion under the property damage liability except for damage caused by fire, smoke or explosion. There is a modest amount of coverage under the Section II liability for Damage to Property of Others, but at the most it is only $1,000.
One important note for the personal property coverage mentioned above; coverage is limited to the perils insured against under Coverage C. The standard policy typically only insures for Named Perils. I would strongly encourage that you endorse your policy or be sure you have coverage for Open Perils on Coverage C. This will give you the broadest coverage possible, not only for your peace of mind on vacation but also with your everyday life.
Friday, June 12, 2009
Unfortunately one of the negatives of living in this country is the litigiousness of our society. A seemingly innocuous stint as a basketball coach for the local recreation program can turn into nightmare claims scenario when a child suffers a severe head injury during a practice; or, while you’re a serving as a board member for a local not for profit and are personally sued because of a management decision the board made. Sadly these scenarios are not as rare as they may seem, and the time to investigate coverage is before they occur.
Let’s examine where we would likely find coverage, if any, for our activities as volunteers. The first place one might look is their Homeowners/Renters (HO) insurance policy. The good news is there is some coverage to be found here, the problem is it is limited. The typical HO policy will respond to the actions of an insured while functioning in his/her capacity as a volunteer (no compensation). The caveat is that they are limited to claims of liability for bodily injury and property damage only. The policy may and should be endorsed to include Personal Injury coverage (libel, slander, etc) as well.
What about claims other than bodily injury or property damage such as the second example above, a management mistake that results in a financial loss only? Here an insured might find coverage in their Personal Umbrella Policy (UMB), if they have one. This is somewhat of a precarious expectation though as there is no standardization in UMB policies, thus requiring a careful review of policy language to see if coverage is there and to what extent.
Ultimately your own personal coverage should be considered a supplement to the coverage provided by the organization you are volunteering for. Before choosing to volunteer you should be asking what if any liability coverage is in place to protect you as volunteer for the organization. Depending on the capacity under which you are serving you should be looking for the following:
- General Liability. This is coverage for the organization similar to your personal liability. You want to be sure they have it and that is includes you as volunteer as and insured. Thus if you are sued you can look to this policy to protect you. If the volunteering is athletic or sports related, you want to be sure the policy is covering the athletic particpants and not excluding them. If children are involved you want to be sure there is abuse or molestation coverage as well; should some sort of accusation arise during your service.
- Directors & Officers Liability. This is coverage to protect the organization and board members for the management of the organization. Thus if a donor or some other stakeholder sues over financial decisions made by the board you will be protected. Often times the By-laws of a not for profit will state the organization will indemnify board members for their service, but this does you little good if there is no insurance to back up the indemnification and the organizations assets are all there is. You’ll want to be sure it included Employment Practices Liability as well, to help protect against employment related claims (i.e. wrongful termination, harassment, etc).
- Automobile Liability. If in your duties as a volunteer you are driving vehicles owned by the organization. You want to be sure they have adequate limits of coverage and that you as a driver are covered as an insured. With respect to using your own vehicle, typically your own insurance is primary, so the burden is on you to make sure limits are adequate and the insurance company is aware of the activity. The organization may have a Non-owned automobile policy, but it will be secondary to your coverage and protect them only.
The bottom line is your own personal insurance should be secondary to the insurance coverage of the organization you are volunteering for. A little due diligence on your part in the beginning can add to the satisfaction you receive from volunteering.
After all, volunteering is a good thing and shouldn't be ruined by an unforeseen accident.
Thursday, June 4, 2009
Let us examine this further with some background information. In order for any liability policy to pay for a claim it has to be proven the covered entity was negligent and thus responsible for the financial loss being claimed by the third party and for which the coverage is applicable. As part of the coverage provided by the insurance company, they retain the Right to defend against the claims in order to protect their financial interest. Very often policy language stipulates in addition to this right they have a “duty to defend” these claims, whereby the company is required to provide a defense even if ultimately the claim is found not to be covered by the insurance. In my opinion, the real value of a liability insurance policy lies in this Defense and it is applicable no matter what type (Personal, Business, Automobile, Professional, etc.) of liability coverage you purchase.
As an additional benefit, most standard liability policies provide for the Defense Costs (the costs and fees associated for fulfilling the defense) to be outside the limit of liability limit. That is, the money they spend to defend is in addition to the limit of liability available to pay for losses. Thus there is the potential for the company to pay for thousands of dollars in legal costs associated with a claim in addition to amounts they may pay if found liable. This feature however is a little bit of a double edged sword, because as you may have surmised, the insurance company will want to keep these costs to a minimum and will be inclined to settle claims before they get out of hand in there eyes (Note: This goes to the heart of reasoning to purchase higher limits of coverage, but that is the subject of another posting).
There are, of course, several other supplemental coverage items included with most liability insurance coverage. However, none are as important in this author’s opinion as the defense.
Thursday, May 28, 2009
First, as always, a little education; Employment Practice Liability Insurance (EPLI) is available to employers to help defend and respond to claims by employees for acts related to their employment. Typical (but not all) types of claims an employer would see coverage respond to would be:
- Wrongful dismissal, discharge or termination of employment
- Violation of employment discrimination laws (including harassment)
- Breach of a written or oral employment contract or implied employment contract
- Sexual or workplace harassment of any kind
- Wrongful demotion
- Negligent employee evaluation
- Wrongful deprivation of a career opportunity
Other key aspects of an EPLI policy are:
- Defense cost coverage for claims seeking non-monetary relief
- Third Party Liability
- Independent Contractor coverage
- Claims involving arbitration, regulatory and administrative proceedings, EEOC & Department of Labor investigations
At this point some may ask whether or not their current liability insurance provides coverage for these exposures. The answer is an emphatic NO! Most Commercial General Liability polices and Workers Compensation policies have very specific wording excluding coverage for these types of claims in their policy language. For the most part the case law has upheld these exclusions with few exceptions.
Before we would look for EPLI coverage, I encourage clients to undergo some honest self evaluation regarding their own organization’s culture as it relates to employees. A thorough examination of their Human Resources (HR) procedures is not only necessary from an insurance underwriting position; it is also a good risk management process to undergo on a regular basis. Consistent evaluation can help identify potential problems before they develop and allow for corrections to be made. As a starting point I would ask “Do you have an Employee Handbook?” Whether you have 1 or 1000 employees, a handbook is probably the single most important tool an employer should have in their HR toolbox. A handbook represents the best avenue for communicating policies to and setting the HR tenor of the organization for employees. The development and update of an Employee Handbook will help to get an organization on the right path to EPLI loss control and is also required by most insurance companies as a condition of coverage. Again, the handbook is just a good jumping off point, a full assessment of all HR functions and activities should be done. There are many HR assistance organizations that can be utilized to aid any sized organization in this process.
Once the self evaluation is completed you can discuss the availability and make up of EPLI coverage for your organization. Be prepared, for depending on the make up of your organization (i.e. structure, size, industry, etc), the cost of EPLI coverage can run the gambit of relatively inexpensive to pricey. For example most Not-for-Profit organizations can have EPLI added on to their Directors and Officers Liability coverage for little or no additional premium. However for most For-Profit businesses it is a stand alone policy which can be expensive. As with most insurance, you get what you pay for, and, thus you can affect the pricing with the coverage options you choose. Also, there is no standardization of coverage forms as with most other insurance policies, so it is important to examine specimen coverage forms carefully to denote differences in coverage.
So to answer this week’s question, I say from a Risk Management standpoint, in good economic times or bad, having solid and consistent HR procedures will help mitigate your chances of a claim. However, it is not a total barrier and it would be nice to know you have the EPLI coverage to pull out of your tool box if needed. Think of the HR procedures as your belt and the EPLI coverage as your suspenders; it will be very unlikely you’ll get caught with your proverbial pants down!
Thursday, May 7, 2009
One important fact applicable to a person who is covered under a Personal Auto Policy (PAP) in New York is that by law there is automatic coverage for loss to a rental vehicle included in their policy per state law. It includes any amounts, including the loss of use of the rental vehicle, the renter is liable for damage to the rented vehicle and regardless if the vehicle is rented in or out of NYS as long as it is in the covered territory of the United States, its territories and possessions, and Canada.
Now getting back to the question, our answer is .... Yes! We encourage our clients to purchase the insurance from the rental company, also known as the Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW)
I can hear you know "Jamie why should I buy the CDW/LDW at anywhere from $8 to $20 a day if I already have coverage!" My simple answer is "The Headache" factor. How much of a headache do you want to have in the event you do have a loss with a rental car? I suspect your answer is going to NONE! Well I can not promise you none, however if you buy the CDW/LDW I can promise you a lot less hassle and that translates to a smaller headache.
Let's examine a hypothetical claim scenario. Please keep in mind this scenario assumes both drivers have a New York State Personal Auto Policy. If you are insured in another state or you are renting the vehicle for business you will need to check your specific coverage related to rental cars.
Jane and her family just enjoyed a wonderful yet long day at the Magic Kingdom. They survived the cramped monorail ride back to the TTC and subsequent tram ride out to Minnie 23 only to find one of the other fine patrons of the "Happiest place on Earth" has backed into their rental van with his rental. The whole front end is smashed in and it is not drivable.
Jane puts a calming hand on her husband's shoulder to contain his outrage; then digs her contract out of the glove box to locate the 800 number she is supposed to call if something like this happens. Stuart on the other end answers and listens carefully to Jane's tale of woe. When Jane finishes, Stuart happily reminds her that she (over the objections of her husband) wisely purchased the CDW/LDW and thus they will be showing up shortly with a truck to pick up her damaged vehicle. They will also be there with a replacement vehicle (of similar or larger size as typically stipulated in the CDW/LDW contract) so she can be on her way to the hotel. As Jane ends the phone conversation with Stuart, she notices Phil, the other driver, is on the phone with his rental company and his conversation is steering in a significantly different direction.
You see Phil did not listen to his wife and thus did not buy the CDW/LDW from his rental company, after all he already has a PAP. Phil is informed his rental company will be showing up with a truck to take the damaged vehicle, but he will likely have to get a cab back to the hotel and come to the rental company to settle the damages and to fill out another contract for a new vehicle. Phil hangs up and calls his insurance company to inform them of the accident. They let him know they will need to have an adjuster go out an look at the car and negotiate with rental company for the damages. The next day Phil has to take a cab to the rental company, which means he is not with his family(who also had to take a cab) at EPCOT. He is told when he gets there that they already have an estimate for the damage and they want payment. Phil calls his insurance company to tell them the situation. Phil's insurer insists they want their adjuster to see the estimate and the vehicle. He spends the next several hours on the phone with the insurer and the rental company trying to get the matter settled. He then has to arrange another vehicle and unfortunately they do not have any min-vans left, just compacts. Phil dutifully drives the compact to EPCOT to pick up his family. While they are trying to figure out how they are going to fit all the stuff and everyone else in the car, Phil looks up and spies Jane and her family walking to their new mini-van after a fun filled day TOGETHER at EPCOT.
So who do you want to be...
... Jane or Phil?
Pick your headache.
Monday, April 20, 2009
Sadly this is the common philosophy that permeates most small business owners today and unfortunately nothing could be further from the truth.
The Real Risk
One of the leading areas of loss to small business today is from employee theft. This includes thefts of money, equipment, intellectual property or merchandise. Government statistics show the cost to business for these loses to be in the billions every year, and some indicate growth of 15% or more every year. In today’s economic climate the growth rate is even higher.
One insurance industry study showed that an average of 1 out of every 3 employees steal from their employer. For a retailer the loss do to employee theft is actually many times more costly in value of goods than a shoplifter. Employee Dishonesty losses not only threaten the profit of the business but perhaps even its very existence; employee theft is responsible for over 30% of business bankruptcies.
The Solid Solution
The biggest reason for these staggering statistics is lax procedures related to bookkeeping, inventory controls and general employee oversight. There are some simple strategies that may be implemented in order to mitigate your chance for losses of this type risk.
- Prevention starts at the TOP. As the owner/manager you establish the ethical standards and practices of the business. Employees will look to you as the “moral compass” of the organization. So set the standards high and lead by example!
- Implement and communicate a clear “Zero-Tolerance” policy on Employee theft. Anyone who violates the policy, including managers, will be terminated. Follow through on the policy!
- Audit your accounting and record keeping procedures. Limit access to accounting functions to only those that really need it. Closely monitor whoever is responsible for accounting functions, utilize surprise audits. Individuals who process accounts payable or reconcile accounts should not have signature authority. Vacations of more than 5 days should be required of key people so that their work can be audited.
- Establish strong and consistent supervision strategies of all employees. Perform spot audits, if possible by people from other departments. Consider the use of video cameras, especially in retail or warehouse situations.
- Examine and establish good hiring practices. Have consistent and thorough interview procedures. Perform thorough reference and background checks, including criminal
Following some simple strategies as outlined above can go along way to preventing losses do to employee dishonesty. There are many resources relating to employee dishonesty on the web that can help a business set up a system of checks and balances to aid in the prevention of these and other crime losses.
Coverage for these types of losses is often included or available on your standard Property Insurance policies. Your agent can help you structure a crime policy to cover not only Employee Dishonesty, but a wide range of Crime related exposures; including – Computer Fraud, Wire Fraud, Theft of Money & Securities, Counterfeit Money or Money Orders and Forgery. Such policies can provide the resources to help uncover and replace the losses from employee theft; without the claims experience affecting your other coverage.The most surprising acts of dishonesty comes from the employee you trust the most...yourself! It happens when you deceive yourself into believing the risks outlined above do not apply to your business. Always remember my 1st bullet point "Prevention starts at the TOP...lead by example!"
Wednesday, April 8, 2009
THE REAL RISK
Sadly the above statement is a common misconception by most insured’s, or should I say uninsured’s, who have a business they operate out of their home. In today's economic climate, with massive layoffs and corporate downsizing, many individuals are turning to self-employment as a means to earn a living. This brings in new challenges for them, including insurance exposures.
Since each homeowners policy is unique, the following are general statements about the possible coverage problems faced by a business operating out of a home.
- The standard Homeowners policy provides, in general, NO LIABILITY coverage for any business activities
- The standard Homeowners policy provides very limited coverage, usually up to only $2,500 for business personal property while ON the premises. OFF premises exposures are even more limited
- If the business is operated out of another structure on the premises, the other structure is not covered on the standard Homeowners policy
- The definition of and "INSURED" in the standard Homeowners policy does not include corporations, non-resident “partners”, or employees thus there is no coverage.
- You may be able to add by endorsement certain “incidental business” activities to your policy. However, the coverage is very restrictive and usually limited to ON premises activities, virtually no OFF premises activities are covered.
- The standard Homeowners policy does not provide any coverage for professional liability. This is especially troubling as many in-home businesses are of a professional or service type nature providing consultation and/or professional advice to thier client. Therefore there is no coverage for these activities.
- There is no coverage for business income on the homeowners policy.
- Other coverages to be considered are potential Automobile Liability exposures if personal vehicles are used routinely in the course of the business operation and Workers Compensation if you have your own employees.
- Your Homeowners Insurance Carrier has a right to know what you are doing and you have a duty to keep them informed. Failure to disclose the business exposure could jeopardize the personal coverage as well.
The bottom line is there are large and ominous coverage gaps facing individuals operating ANY type of business out of their home. The business should be treated as any other regardless of where it is operated.
THE SOLID SOLUTION
Start with a detailed conversation with your independent insurance agent. Many coverage options are at your disposal and surprisingly affordable. Many insurance companies specialize in writing small packages which bundle together necessary general liability and property coverages to protect these In-Home operations.
As with anything communication is key. By lettting your agent know what your plans are ahead of time, you can avoid an expensive uninsured loss.
Friday, March 27, 2009
My first response is to discuss with the client different key values on a property. Part of that process is an overview of how an insurance company develops a Replacement Cost Value. The main goal is to be sure they have an understanding of how the property is valued.
The three most important values you will see placed on a property are as follows:
1) Market or Appraised Value- how much a given piece of property is worth to another buyer;
2) Assessment Value - the value placed on a property for municipal tax purposes;
3) Replacement Cost Value - the value placed on a piece of property by an insurance company for the purpose of coverage.
It is important to understand that as a general rule these values will not be the same.
In its simplest terms MV is the price a willing seller will sell a given piece of property to a willing buyer in a standard arms length transaction. However, if you speak to a Realtor, Mortgage Broker or Property Manager, they will tell you that Market Value is a product of many factors including location, size, features, current market conditions, etc. In order to develop a good MV, an appraisal of the individual property is done. This is typically a full physical inspection of the property followed by a detailed study of all the other factors. Then a valuation is placed on the property. It should be noted that this is the most fluid of all the values on a given piece of property as the factors are almost always changing. The only time the factors from the actual cost of construction play into this number is when it is a new construction. The new construction costs are used as a basis to determine the worth of building relative to the anticipated sale price. Obviously the truest indicator of the MV of a piece of property or home is what it actually sells for.
This value is often the most controversial of values a property is given since it is a basis on which an owner will be taxed. On its face, AV is purported to be tied to MV. However, it is more heavily influenced by economic and political forces due to the financial needs of the local municipality that sets the values. The AV is tied to more generic market conditions (i.e. similar properties that have sold in the area), not specific factors unique to an individual property. Another key issue is the data is usually a historical picture of the market based on information from the prior year. We know this can be dramatically different, both positively and negatively, then what the current conditions are. There may be times the AV will be the same as the MV, however typically it is only for about a year or two immediately following the sale of the property when a true value has been set.
Replacement Cost Value(RCV)
RCV is tied to the actual cost to replace a given piece of property with the same materials and in the same manner in which it currently exists without deducting for depreciation. It is driven by the cost of materials & labor in the area the property is located.
“But Jamie” my client says, “I just built my house and I know exactly how much it cost to construct it. Why is the insurance company coming back with a higher number?” At this point, I stress the word replacement. I remind them Replacement Cost is an insurance based value and there is also a factor that some loss (i.e. fire or wind damage) has occurred. Once a loss has occurred the clean up and debris removal of the damaged property must now be taken into consideration before any construction or rebuilding can begin. The property owner can expect approximately an additional 10%-25% of value added to the RCV for this contingency.
Each value is important and unique to each area. Interchanging one for another, especially for insurance purposes, would lead to negative financial consequences. The best solution is to work with your independent agent as your advocate, to establish a Replacement Cost Value which is reasonable and agreeable to all parties.