The Insurance Assurance Blog

Risk Management Advice

2009-12-08T09:50:00.000-05:00

Each fall I teach a class on small biz management at a local community college. We just finished a unit on risk management. Here are some of the suggestions I made...

--Backup your computer data up every night - off site.

--Hire employees slow. Fire them fast. - Good people a gold. Deadwood will kill

your company.

--Run background checks on every new hire, check references, credentials, and

talk with former employers.

--Build a company culture that values honesty and integrity.

--Build systems that prevent employee theft.

--Review your insurance with your insurance agent at least annually

Flood Insurance Test

2009-12-04T15:43:00.001-05:00

I just finished a self study test on flood insurance as part of my state's continuing ed requirements. A 25 question test - took me 10 minutes to complete - grade of 100% - earned 3 hours of CE.

I spent over $5,000 a year on books, subscriptions, and other educational materials. I research and write articles on all manner of insurance issues. I read policies and review other reviewer's materials. None of this earns me a single CE credit. I spend 10 minutes and $15 and I get 3 hours of credit.

What a screwed up system. CEs do not protect the public. It just lines the pockets of testing companies, creates bureaucracy and promotes a tremendous sense of mediocrity in the insurance business.

Competition

2009-12-02T11:18:00.000-05:00

To me competition is the best way to get the best price and best insurance coverage. Getting multiple agents and multiple insurers beating each other like a cheap drum always results in good things for the insurance buyer.

Having only one agent who works with multiple insurance companies may be better than just renewing your current insurance. However, true competition only exists when everyone involved in the bid process thinks they may lose.

The threat of loss is a huge motivator for insurers and insurance agents, as it should be.

The Limit to the Question of Limits

2009-12-01T11:18:00.000-05:00

Reader Question:

Hi Scott –

I have read your articles at Guidestar and on your site about D&O for nonprofits. What I can’t seem to find is what criteria to use to determine the limit. I’m part of a nonprofit COO group on LinkedIn and asked others in the group. The few answers I received indicated that limits were suggested by the Board in relation to how risk averse certain individual board members were.

I’d like something a bit more analytical and my board is looking to me to help them analyze and assess their risk. Going from a $2M to a $5M limit increases our premium pretty significantly, so I’d like to make sure that it is called for. Any guidance you can give?

My Reply:

This is the most common question I get.

There are no quantitative answers - past a minimum level. Anyone who gives you a formula is making stuff up.

I have reviewed your financials. To me, $5m is a minimum for you. Your assets and the overall operations tell me you are well past the $2m point.

Beyond $5m I recommend a value based approach. How much is the next million and is it worth it to you and the board? If the 6th m cost $500 you buy it. If it's $5,000 you probably don't buy it.

Sorry I have no magic formula. It just does not exist - beyond superfluousness.

More important than the 5 to 6 million decision is the quality of your coverage. Is the coverage what it should be? What exclusions exist? Can you get a better policy at a better price with another insurer?

Glad to help more if I can.

Admitted vs. Non-Admitted Insurance

2009-11-23T09:12:00.001-05:00

A client sent me a note this morning regarding non-admitted insurance companies. It reminded me of comments I made in 2006 in my newsletter...

Insurance companies can be classified as admitted or non-admitted. The distinction resides in the insurer's way of doing business in a particular state.

Admitted insurers agree to file forms and policies with the insurance regulators in your state. Their financials are subject to scrutiny as are their premium rates and underwriting practices. Most "standard" insurance policies are written through admitted insurers - home, auto, business owners policies. Many professional liability, directors and officers, and pollution liability insurance policies are written on a non-admitted basis. Liability coverage for "hazardous" industries and insurance for companies with poor loss experience may also be written on non-admitted policies.

Non-admitted insurers are under fewer regulatory restrictions. Some of the biggest and best insurers in the world choose to do business as a non-admitted insurer in some or all states. Many "household name" insurance companies have subsidiary insurers that issue insurance contracts as non-admitted insurers. AIG, Zurich, Lloyds, and hundreds of other fine insurance companies are non-admitted carriers.

Status as a non-admitted insurer does not mean sub-standard.

Access to a state-run guaranty fund is touted by many as the key benefit of working with admitted insurers. The fund pays off should the insurer become insolvent. Many agents describe guaranty funds as the insurance equivalent of FDIC.

Not quite true.

First off, guaranty funds have limited liability to policy holders. Maine and Massachusetts limits recovery to $300,000 as do many states. Colorado limits recovery to $100,000. Not much when you are speaking of asset protection - million dollar buildings or liability insurance limits...

Some states provide no coverage for "High-Net Worth" individuals and organizations. Maine uses $25,000,000 as the threshold. Pennsylvania defines "high-net worth" as $50,000,000.

The key to selecting an insurance company is not its status as admitted or non-admitted. It is the experience and financial strength of the company. Review the ratings of AM Best and Weiss Ratings when reviewing your insurer. Neither is a guaranty. However, neither are the state guaranty funds.

Certificates of Insurance

2009-11-13T10:45:00.002-05:00

I'm not a big fan of certificates of insurance. They are, I think, a document of false impressions. They are not a guarantee of coverage.

A cert tells the recipient that an insurance policy was probably in force on the day the certificate was issued. Little is known from the certificate the nature of the coverage - we don't know the exclusions, endorsements, amendments or definitions. Next time someone hands you a certificate of insurance read the disclaimers (front and back).

Are certificates really worth the effort?

Agent Pockets Premium - Ends Up Paying Losses

2009-11-05T16:48:00.000-05:00

A California agent pocketed $6,000 in premiums instead of ordering a policy. He ended up paying a $200,000 loss incured by the insurance buyer.

He also ends up serving two years of probation.

Story Here

Claim Contact Phone Numbers

2009-10-14T17:22:00.000-04:00

Right now. Before you do anything else, send an email to your insurance agent requesting the current claim hotline number for your insurance companies.

(If you're an insurance agent reading this, why not send the claim hot-line numbers to your clients as a service.)

When the agent gets you the phone number call it to be sure you have the right number.

For your personal insurance you need the claim number for your auto, home, motorcycle, snowmobile, etc. insurance company.

For your business insurance you need the claim number for your property, liablity, and auto insurer.

Keep those numbers where they are easy to find. Easy for you or anyone else in your organization who may need them. Make sure those numbers are in every vehicle you own (along with a disposable camera to document an accident).

The faster you report claims, the faster you will get an adjuster moving to help you.

For most cases, it's better to call your insurance company first. Call your insurance agent later.

Do You Have A Black Book?

2009-10-12T18:14:00.000-04:00

A family friend died a few weeks ago. He had been sick for some time. After he died, his wife found his black book.

No, not that kind of black book.

He had a notebook with all his Internet login names and passwords for all the sites he visited. It made it much easier for his wife to access credit card accounts, savings, Internet banking, investment sites and the like.

Do you have a black book that will help your family find what they need if something happens to you?

Password Risk Management

2009-10-07T23:04:00.000-04:00

Google has some good advice on passwords.

http://gmailblog.blogspot.com/2009/10/choosing-smart-password.html

Insurance Market Remains Soft

2009-10-01T16:07:00.002-04:00

Insurance Journal article - Commercial Buyers Remain Winners In Current Insurance Market

Workers Comp Audit Worksheets

2009-09-30T14:02:00.000-04:00

Ask your insurer to provide you with a copy of the audit worksheet prepared for your most recently expired workers' compensation policy. This document provides the details of how the insurance company determined your final premium. It lists employees, classifications and payrolls. Look for errors such as the inclusion of overtime and incorrect classification of employees.

Work Comp Book Online - The Blook

2009-09-29T13:58:00.002-04:00

A reminder that my best selling workers compensation book is available free on line.

www.WorkCompBlook.com

Fast Work Comp Claims

2009-09-28T13:56:00.000-04:00

All your employees should know the importance of fast reporting of any claim.

The quicker you get your employee help the better the outcome. There is no downside to fast reporting.

Employees should know how and to whom claims should be reported. Have a very specific process that is well documented and reinforced. Make sure your work comp insurer is in on what your doing too.

Ask you agent if your insurer has sample procedures you can use.

Of Baseball and Employees

2009-09-01T09:07:00.001-04:00

Op ed piece I did for the Portland Press Herald on getting rid of your deadwood.

Mental Health Parity is the Law on October 3, 2009

2009-08-25T21:46:00.002-04:00

In about a month federal law (actually ERISA) will require parity in health insurance benefits for mental health issues in group insurance and self insured plans. Talk with your plan administrator or insurance company about when your plan is required to comply.

Read the bill here.

Water Detection Devises

2009-08-19T17:34:00.002-04:00

Water damage from plumbing systems is a major cause of property losses. Pipes break, toilets overflow and keep going. Cold weather causes freeze-ups and spurting water when it thaws.

Several companies manufacture water detection devices that monitor water flow and shut the water off at the source when a leak is detected.

For home and commercial properties...

Flo-Guard

FloLogic

Leak Defense System

WaterCop

Some insurers offer discounts on property policies for this type of installation.

Never Shade The Facts on Your Insurance Application

2009-08-17T18:01:00.003-04:00

A discussion group currently includes a question about an application where the age of the roof was misrepresented. The agent asked if such could void coverage.

The answer is, "Of course it can!"

Insurance companies issue policies based upon the information they are provided. If that information is materially wrong there is an impact on the desirability of the risk and the price charged.

You can not guess or lie on an insurance application (I can't believe I have to actually write this).

Of course if you say the roof is 8 years old and it is really 10 the claims adjuster will have a tough time justifying a denial of coverage. However, the difference between a 15 year old roof and a 22 year old roof is substantial.

Anti-Harassment Policy

2009-08-12T20:21:00.003-04:00

Every employer should have a written Anti-Harassment policy.

New hires should get a copy. All employees should get a copy annually.

FindLaw.com has suggested language. Your employment law attorney should review any statement or employee policies.

This is also a good time to review your employment practices liability insurance (EPLI) coverage with your insurance adviser. If you have not purchased EPLI, check out the premiums. The cost has come down dramatically over the last few years.

How Do You Manage the Risk of Misused Time?

2009-08-11T21:37:00.003-04:00

It's time to declare war on Time Poverty.

Join me for a free 45 minute Time Management Teleseminar on Sept 17 at Noon Eastern time.

Gain productivity - Work easier - Be more effective - Reach your business and personal objectives.

Details - www.ScottSimmonds.com/time

Insurance Success Tip #8 - Check Your Work Comp Payrolls

2009-08-06T16:29:00.002-04:00

The payrolls declared on your workers' compensation policy determines your estimated premium.

At the end of the policy year you are asked to report your actual payroll. The audit results in an adjustment to and the final settle-up of premium.

Review your payrolls to avoid a large audit additional premium or a large return premium. Think of it like your income tax - you pay estimated taxes and settle at the end of the year. You don't want a big bill or a big return.

Insurance Success Tip #7 - Review Your Business Interuption Insurance

2009-08-05T20:09:00.003-04:00

Business interruption insurance protects your profits and pays those expenses that continue after an insured loss.

Your store burns. It will take 4 months to rebuild. Business interruption insurance (extra expense coverage) pays to rent a temporary location and to advertise that you are still open for business. It pays your lost profit and those expenses that continue beyond what you are able earn in your temporary location.

Meet with your insurance adviser to be sure you have enough business interruption insurance and that it is properly designed to meet your unique needs.

Insurance Success Tip #6 - Buy Employee Dishonesty Insurance

2009-08-04T15:55:00.002-04:00

Half of all theft in the US is perpetrated by employees. Don't tell me how honest your employees are. Everyone who has been hurt by embezzlement said the same thing the week before they found that they had been taken.

$250,000 of coverage is a minimum for any business. More if your exposures warrant. The coverage is usually cheap too.

Severance Agreements

2009-08-03T11:34:00.003-04:00

My friend Rick Dacri is an HR consultant. His latest newsletter included some comments on the EEOC's latest guidance for employees on severance agreements and employment practices claims.

Important reading for all employers who use severance agreements in layoffs or terminations.

Thanks Rick.

Insurance Success Tip #5 - Remove Coinsurance Penalties

2009-07-30T10:24:00.000-04:00

Coinsurance in property insurance is a penalty clause - a penalty assessed at the time of a loss.

Coinsurance never helps the insurance buyer - it only hurts you.

Get your agent to remove all coinsurance penalties from your property insurance.