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October 5, 2010  

What Is A Claims Made Insurance Policy?

Two different methods are used by insurance companies to determine coverage when writing liability insurance:

  1. “claims made” policies
  2. “occurrence” policy

Most often, commercial general liability insurance is written on an occurrence basis while employee benefits liability, professional liability and employment practices liability insurance will be written on a claims-made coverage form.

On an “occurrence” policy, the coverage trigger is the date of the event or accident giving rise to a claim. The policy in force on the date of the event causing the loss must respond with both defense and/or indemnity. Even if a claim arises years after a policy has expired, the date you receive notice of the claim doesn’t matter. Occurrence policies do not provide coverage for prior acts. They do remain available for claims that arise years after a policy term has expired, however. If an accident or event occurs during the term of an occurrence policy, that policy must respond to any future claim.

As for claims-made policies, coverage is triggered by the date you first became aware and notify the insurance carrier of a claim or potential claim. The carrier’s policy in force on the date you became aware and give notice is the insurer who must defend and settle the claim.  A claims-made policy may reach back in time and provide coverage for claims made today from negligent acts, errors or omissions that occurred years before the policy was purchased.

The following conditions must be met before prior acts coverage is granted:

  1. You must receive notification of a claim or potential claim situation during the policy period.
  2. The claim or potential claim situation must be reported to the insurer during the policy period.
  3. The negligent act, error or omission giving rise to the claim must occur after a “prior acts” or “retroactive” date listed in the policy declarations.
  4. You or your firm had no prior knowledge of a mistake, error or controversy on the date coverage was purchased.

The “prior acts” or “retroactive” date is a crucial piece in a claims-made policy. Your policy declarations page will clearly identify a “retroactive” date that determines how far back prior acts coverage extends. Claims resulting from services rendered before the “retroactive” date are not covered.

Think before you decide to cancel or non-renew your claims made liability policy

If you decide to cancel or not renew your claims-made policy, you must consider purchasing an Extended Reporting Period or “TAIL” coverage to insure you for incidents which occurred while the policy was in force but was reported after the policy was cancelled. For example:

If you purchased a claims-made policy with an effective date of January 1, 2010 and chose to cancel or let the policy lapse without TAIL coverage or an Extended Reporting Period — any claims made after December 31, 2010 would not be covered. If you were sued in 2012 for a wrongful act committed in 2010 (during which time you were covered), the insurance company would not be responsible for paying any claim. An Extended Reporting Period Endorsement (TAIL) “extends your right to report a claim” to your prior insurance company after the policy has ended, canceled or lapsed.

As I often note, make sure your insurance agent is knowledgeable and experienced with claims made insurance forms. It gets complicated. Also, note that I am writing this from an insurance perspective; only to be used for informational purposes! My intent isn’t to provide legal advice here. That’s what lawyers are for…

–JK

September 1, 2010  

What Makes a Good Business Insurance Agent?

It’s fair to assume that most business owners want to develop a long-term relationship with an insurance agent. They want this because they don’t really like insurance, nor do they bother to read insurance policies. They wish someone else would just take care of it for them! By partnering with a professional agent who does like insurance and actually does read policies, it’s one less worry for a business owner, and a big one.

The way the insurance market is set up is not really in the best interests of the business owner. Many small business owners are constantly being approached by insurance agents that may represent just a handful of carriers.  These agents are really just sales agents for the insurance company.  The insurance company might tell the agent something like, “we’re really competitive for workers compensation in the restaurant business.” These small agents will then call all the restaurants and say, “I can get it for you cheaper”. As a result, many small businesses have multiple agents because they have been buying based on price. If insurance policies were a commodity, that might be okay, but, if you’ve ever read one, you find they’re really complicated contracts.  What the small business owner really needs is a broker that is not trying to feed a few carriers, but will truly place the insurance with the right carrier and the right price.

So, how do you make sure a business insurance agent is professional and reputable? Here’s what to look for:

  • Independence. Independent agents represent a variety of different companies—not just one. They can evaluate and compare the products of several insurance companies to find the right combination of coverage and value for each individual client.
  • Licensing by the state.
  • Number and names of companies the agent represents.
  • Number of years the agent and agency have been in business.
  • The agent’s professional designations. For example, CPCU (Chartered Property and Casualty Underwriter) and CLU (Chartered Life Underwriter) are among the industry’s most rigorous and prestigious designations.
  • Areas of specialization. Some agents and agencies have experience in specialized products, such as insurance for a restaurant, an IT consultant, or a home business.
  • Recommendations and referrals. How did you hear about the agent and the agency? Did someone you trust refer you?
  • Full-service capability. Is this a full-service agency for business, personal, health, and disability products?
  • Service representatives. Who will handle your account for routine updates and transactions?
  • Claims help. Ask if the agent plays a role in handling and tracking claims. Will the agent help resolve disputes that might arise with an insurance company?
  • Policy review. Does the agency occasionally review and update policies to make sure your insurance is keeping pace with changes in your situation?
  • Industry associations. Does your agent participate in any local, state, or national trade associations? These activities often signify professionalism and a commitment to continuing education in the insurance field.

What kind of relationship do you have with your agent? How do you feel about their services? How do you know you’re in the best position with your business insurance?

-JK

*Information supplied by the Independent Insurance Agents & Brokers of America and the ISU Group One Responsible Source™ program.

August 25, 2010  

Risky Business? There’s a Surplus Lines Insurance Carrier For That

Most businesses have no difficulty getting insurance in the “standard” insurance market, but if your business has a significant loss history or is engaged in high-risk operations, you might not be able to find insurance in the standard commercial insurance market. This doesn’t mean you’re out of luck as a business owner. Rather, you’ll be looking at the “surplus” lines insurance market for your business insurance.

It's safe to assume a trampoline manufacturer has product liability insurance placed with a surplus lines insurance carrier

The surplus lines insurance market, also referred to as the “non-admitted” market, is a segment in the insurance industry where the more difficult or unusual risks are written. Examples of specialized risks include professional liability insurance or high risk business operations such as a manufacturer of medical devices or explosives.

Insurance brokers usually turn to the surplus lines market for their clients after they are denied by at least three state licensed “standard” commercial insurance carriers. Most states identify the standard lines insurance companies as “admitted,” “licensed” or “standard” and the excess and surplus lines insurance companies as “non-admitted,” “unlicensed” or “non-standard.” However, these terms tend to reflect a negative connotation in regards to the strength and security of a surplus lines insurer. The fact of the matter is, most states require surplus lines insurance companies to maintain higher minimum capital levels than they require admitted markets to carry.

As for obtaining insurance for a tough-to-place businesses, the surplus lines insurance market can only be accessed through a specially licensed broker. The broker must have a surplus lines license in order to sell surplus lines insurance. Your broker must provide you with a disclosure notice if your insurance is being issued with a surplus lines company.

Now, for a cheesy analogy to tie this all together, insurance is a lot like love. They say there’s someone out there for everyone. Well when it comes to insurance, there’s an insurance carrier out there for every business. Surplus lines insurance carriers help make the business world go round.

-JK

July 23, 2010  

Jack of all trades?

I feel like I’ve been getting a lot of calls lately from general consultants inquiring about insuring themselves for a wide array of services provided.

• An Emergency Management Consultant/IT Consultant/Auto Consultant.

• A Software Developer tossing the idea around of construction staffing services.

• A Marketing Consultant/Producer/Event Planner

I think the ambition is great, but there needs to be some degree of caution taken in regards to liability exposure. Insurance policies aren’t intended to be written as “one size fits all.”

Insurance carriers look at your business entity (sole proprietor, LLC, corp, etc) when underwriting a risk. Underneath that entity, they want to know what types of business operations are being carried out. Most businesses tend to fall under one general classification, but offer a wide array of services. For example, an IT consultant may do software development, website design, and web hosting services. No big deal, a single general liability or professional liability policy can probably be written with ease to cover these related services.

However, if you’re a handyman/marketing consultant/inflatable bouncer rental guy, then you should consider different entities for each line of business. Insurance carriers all have their own appetites as to which types of risks they like to write, so if you’re all over the board, your coverage options are limited.

If it’s too much time, trouble, or money for you to start a new business entity, then consider taking a step back and concentrate on what you do best with and focus your efforts there.  Once you find success and business is rolling, then start exploring other opportunities if that’s your passion. Taking it one step at a time might not be such a bad thing.

As the saying goes, “Jack of all trades, master of none.” You can be a Jack of all trades, but be smart about it and know your exposures.

-JK

July 6, 2010  

Businessowners Policies: Comprehensive AND Affordable

If you have a business with revenues typically less than $10,000,000, you might be eligible for what’s called a Businessowners Policy, commonly referred to as the (BOP). Businessowners policies have been compared to a homeowner’s policy for business and have become a very popular over the years. The reason is that these policies combine a variety of basic coverages into a package at a premium that is usually less than the cost of purchasing these coverages separately. 

Businessowners policies combine property, general liability, and business interruption insurance along with a list of supplemental coverages that businesses may need. Optional coverages can also be added to meet specific needs of the business. It’s kind of like bundling your cable, internet, and phone together under one package instead of purchasing them individually. Maybe this isn’t the best analogy though, as I know first hand that my cable/phone/internet package costs a ton!

There is an extensive list of business classifications eligible for Businessowner’s policies. To name a few, retail stores, offices, and apartment complexes all the way to restaurants, dry cleaners, and beauty salons.

Chances are that if your business fits under these guidelines, you are already insured under a BOP policy. However, if you are uncertain, be sure to check in with your insurance agent to verify. You may just save yourself some money while carrying better coverage in the event of a loss.

July 1, 2010  

Have A New Business? Insurance Options You Must Consider

So you’re starting a new business and giving thought to what types of insurance you need to carry. Or, maybe you haven’t given insurance any thought at all. As crazy as it sounds, business owners often avoid insurance all together to bypass the cost. However, without coverage, all it takes is a single accident or a lawsuit to drain your capital and drive you out of business for good. Insurance is purchased to protect against loss and financial impairment of your business, aka your livelihood. You need it.

“What type of insurance do I need to make sure my business is secured?”

 

 The answer to this question varies depending on the type of product you sell, or the services you provide. Not all businesses have the same exposures, so an analysis must be done by your insurance agent. You’ll need to design an insurance package that meets your business needs and provides you with the level of protection you’re comfortable with.

Here’s a summary of the type of insurance your business might need:

Property Insurance: Provides protection against most risks to property such as fire, theft, and vandalism. If you have a home based business, your homeowners/ renters policy will not cover your business articles. You need to cover it under your business policy.

General Liability Insurance: A must, no matter what type of business you own. Liability insurance protects your business from: bodily injury claims, property damage to others, and advertising claims (Injury arising out of libel or slander, misappropriation of advertising ideas, or infringement of copyright, in the course of advertising goods, products, or services). Liability insurance may be the only type of business liability insurance you need depending on your business situation.

Professional Liability Insurance: If you’re a professional, such as a doctor, lawyer, realtor, management consultant, etc, you should consider carrying professional liability insurance (errors & omissions insurance). This type of insurance helps to protect an individual or a company from enduring defense costs for lawsuits relating to an error or omission in providing professional services.

Workers Compensation Insurance: If you have employees, workers compensation insurance is required by state law. WC provides medical benefits, disability (loss of earnings) benefits, death benefits, and rehabilitation benefits for employees who are injured in the course of employment.

Business Interruption Insurance: If a catastrophe like a fire causes your business to shut down, business interruption (aka business income coverage) is designed to help. It pays your net income and operating expenses, and other reasonable expenses to keep your business from shutting down after a disaster and during restoration.

These are just a few of the many insurance coverage’s out there. Don’t get discouraged at the broad variety. Many of these coverage’s can be packaged together under one policy and with the help of a knowledgeable insurance agent, you shouldn’t have to worry about all these things. If in doubt, pick up your phone and contact your agent today.

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