Still, sophisticated or not, errors are made. After twenty-five years of working in this dull and evil field, I still come across intelligent businesses that need incompetent assistance. It is often disguised as honest, professional and friendly. It amazes me how much we can tolerate, but it must be the nature of the product. Insurance can be confusing, boring, and most businesses hate it. That is something I fully understand. It is because someone needs to breathe new life into the atmosphere. Another factor is that consumers and agents make huge mistakes. Why leave something that works? Let me tell you about the most recent issue I have with a client.
Our client is a manufacturer employing approximately 80 people. They want us to help them reduce their costs. This is what we do every single day. After reviewing their policies, I discovered that they have two buildings, but each is insured for less that $200,000, and each one covers more than 17,000 square feet. That, my friends, isn’t enough insurance. This is just the beginning. The client is covered by a “coinsurance clause” in their policy.
Co-Insurance explainedAll commercial insurance policies have a Co-Insurance Clause (unless removed), which requires that insurance be subject to a certain amount of the insured’s value. There is no Co-Insurance penalty if the insurance is at least equal to the required percentage. However, if the insurance amount is lower than the required percentage, penalties will be applied to all claims except those with the smallest.
This example is the best illustration of Co-Insurance.
Building Value $100,000
Co-Insurance Percentage: 80%
Minimum Required Insurance $80,000
The amount of insurance carried $60,000
Fire Damage $25,000
Insured amount $60,000
80,000 x 25,000. = $18,750
This is an example of the Co-Insurance concept in dollars.
“DID you insure more than SHOULD you insure times the LOSS?”
The client’s policy had the coinsurance clause, but it was at 100%. This meant they had to insure the property at 100 percent of its value. The $200,000 was only half of the value. This client had no coverage if they suffered a loss due to this factor. However, they did pay each year for this. They paid each year for NO COVERAGE. They likely had “the agents errors or omission insurance”, but they would have to sue their agent friend for the coverage to be effective. What is the reason this client was underinsured? They must have known that there was not enough coverage. They had to have read the policy.
They knew that the client had underinsured the property. However, they wanted to save money and could live with the coverage they chose. They didn’t know how the penalty would impact them. Imagine filing a claim only to find out that you had been paying for the coverage you thought you had. Guess what? Your premium will not be refunded by the insurance company for coverage that you don’t have. Nice, isn’t it?
This was a simple fix. We arrive, find a carrier that will provide the client coverage for $3,000,000,000,000 dollars on buildings. We also eliminate the coinsurance clause and the BEST, the client saves 40% on their premiums. It’s not possible to get better than that. We provided coverage for the client they didn’t have and saved them money. Yes and no. Our client decided they loved their agent, so they wanted to keep them. This is part of our agreement, as you can have everything you want with us. Our client kept their current agent, but for 40% less coverage. We recommended that the client leave the agent. He did a terrible job for the client. But in our business, clients make the calls. We just help you manage a powerful business. You’re the boss. Is there a co-insurance clause on your policy? Are you looking for a super-hero or a co-insurance clause?
Andrea Luoni
President/Consultant
RateCraft
