At first blush the package policies offered by many of the insurers in the commercial insurance market space look really attractive because of all the various extensions of coverage that are automatically included. Its no longer just a policy that insures your building and equipment against the risk of fire or hail damage. Some of the more common extensions are;
- building upgrades
- environmental upgrades
- landscaping and growing plants shrubs or flowers
- business contents away from premises and while at employee residences
- valuable papers
- accounts receivable
It looks great, but what does all this mean? How much of the total amount of insurance would apply to any one of these extensions? Some of it? All of it? Or are there specific sublimits? Do you even need all of them?
The fact is that most of these ‘add on’s’ do have real and important value.
Another truth is that most consumers have no idea what the value or relative importance of any of these extensions are to their particular needs. As an experienced broker, I know that these extensions are what are often referred to as ‘talking points’. That is to say, each one of these extension of coverage needs to be addressed individually and the correct amount of insurance allocated for each.
One of the notable examples from my own experience was a small consulting firm that suffered severe damage to the contents of their rented office due to sprinkler leakage. The stuff that comes out of a sprinkler pipe isn’t just water, and makes a real mess. This particular client had been referred to me by another much, much larger firm that had been an important client to me for many years. The consultant, albeit a very small one-person operation, was an important asset to the larger company who relied upon their essential services.
All they wanted was enough insurance to satisfy the provisions of their lease for the rented office space.
This is a very common scenario and one of the reasons we review lease agreements along with other contract our clients enter in to from time to time. The review of the lease started a cascade of issues as far as risk and assumed liability were concerned. The landlord was responsible for nothing other than providing space within four bare walls and heat. Any risk of loss even if it was due to the negligence of the landlord was pushed back upon the tenant.
We explained this to the consultant and advised them that we recommended a full suite of coverages with specific amounts to expand on many of the ‘add on’s’ as illustrated above. It came at a price higher than the $500.00 online quote they had received for ‘similar’ coverage. Three times a much in fact. They told us they wanted to do business with us but to reduce coverage to the ‘basic’ package as they felt that was all they needed. We responded by saying we were unable to do that and warned them of the potential consequences if they opted for the other quotation. We would close our file and wish them well. (Failing to warn them would open us up to liability for failing to do so even though we had no formal relationship with them. But that’s another story.)
As professionals and Trusted Advisors, we rely on referrals from our existing client base,
so, we always let out clients know what happens to their referrals. In this particular case the response was one of surprise and dismay. They wanted to know the whole story which we of course could not discuss in detail other than to say our advice was not accepted and the consultant was left seriously exposed.
Our client had been with us long enough to become educated on risk and contingent exposures in their supply chain and key service providers. The result? The consultant was asked to furnish a Business Recovery Plan with details of their risk management program and details of how they would finance their risk. They were no longer able to qualify as a preferred vendor.
They came back to us and not only did they take up the offer we had made, but asked us to advise them on the proactive steps they needed to take to mitigate their risk. We did so and for no additional charge, which makes no sense either, but that’s what we do.
Several years later…..
The building suffered a serious failure in the sprinkler system and the consultants’ office was deluged with the mixture of sludge and water from the piping. Everything in the office was rendered unusable. The consequences to our client were minimal with completely appropriate insurance and adequate coverage amounts for the so called ‘add on’s’. The cost of reproducing the paper records alone were ten times greater than the basic amount provided by the extension. The Extra Expense insurance made it possible for the consultant to engage the resources needed to get their physical plant up and running in a new location as well as the temporary space from which the business continued to run. There was virtually no interruption in the business or revenue stream.
We also coached them on the term of their new lease.
This is just one area where the commercial insurance package policies fall short. I should stress that this is not the fault of the insurance companies who offer these products. The opposite is true in that they are striving to offer the most appropriate coverage and service that they can. Its is up to the consumer to make sure they understand the product and how well it meets their needs and risk appetite.
Who should you go to concerning risk and risk financing?
We go to accountants for tax advice and lawyers for guidance in legal matters. Licensed and educated Insurance Brokers should be your Trusted Advisors for mater concerning risk and risk financing. Many people like to go to their lawyer or accountant for this kind of advice which makes about as much sense as taking your Lexus to your barber for service.
This is just one example of the pitfalls of the typical package policy, and this story is just as much for the average inexperienced broker who handles insurance transactions as a commodity instead of a matter that requires close analysis. The reason for this is simple; there is no money in it. On average, premiums are too low to generate enough revenue per transaction to make it worth handling this kind of business. The downside risk for failing to do so is out of all proportion to the percentage of revenue for the average brokerage firm where 20% of the clients generate 80% of the revenue.
Let’s have a look at some of the other policy segments and the various extensions of coverage that in a perfect world would be addressed in more specific detail;
Liability. The big question here is; ‘How much is enough?’
- bodily or mental injury
- property damage liability
- personal and advertising injury liability
- libel and slander
- tenant’s property damage liability
- voluntary medical payments
- non-owned auto
- legal liability for damage to rented automobiles
- contractual liability
- employers’ liability
- employment practices
- errors and omissions (professional liability)
- Loss of profits or gross earnings
- Extra Expense
- Rental Income
- Key Payroll
- Accountants’ fees
- Restricted access to business
- Key supplier
- Mortgage rate guarantee
- electrical arcing
- mechanical breakdown
- computers, photocopiers, production machinery,
- heating and air conditioning,
- point-of-sale (POS) systems and
- refrigeration equipment
- pressure explosions – hot water tanks, boilers
- centrifugal force
I have decided to save the best for last. Crime is one of the most underserved risk segments and I haven’t even begun to talk about Cyber Liability or Environmental. The number of businesses who suffer a crime loss only to learn the basic policy sub-limit is $10,000 or less should be a wake-up call, but for some reason the average business owner does not take up the coverage, or if they have, for an inadequate amount.
- employee dishonesty
- money, securities and other property
- counterfeit currency and money orders
- forgery, alteration, credit cards and automated teller cards
- electronic fraud and funds-transfer fraud
- professional fees
- incoming cheque forgery
In closing I can only repeat my opening comment;
Beware the Package Policy! Yes, the various extensions are important and valuable, but the amounts are basic and only serve to establish a basis for further dialogue.
Thanks for reading and have a great day!
Insurance companies are starting to see profits after several years of disastrous results. Maybe now we consumers will start to save money on our insurance.
“The 2021 industry combined ratio was 85.2%,” PACICC chief economist Grant Kelly and research assistant Zhe (Judy) Peng write in the latest Solvency Matters quarterly report, released Wednesday. “This is the lowest combined ratio ever recorded by Canada’s insurance industry, beating the previous best of 87.5% recorded in 2006.”
Not so fast!
Inflation – that ugly word we all hate. You ask, how on earth could inflation affect insurance rates?
Here’s a few reasons why we won’t be seeing much rate relief.
The CPI (Consumer Price Index) is at 5.7% which is close to a 30-year high. That means costs to us are increasing.
- Labour costs are on the rise due to one of the lowest unemployment rates Canada has seen in many years.
- The supply chain disruptions have led to limits in production which means higher costs.
- Consumer demand has also driven prices up – the standard supply and demand curve.
- Prices for new and used vehicles has increased and repair costs are also on the rise.
What can you do?
There are several ways you can save money on your insurance. Here are three of them!
Review the values on your property
With costs rising, you must increase the amount of insurance to reflect those costs. Most policies provide replacement cost coverage which means if you replace the property or your contents that have been destroyed you will be compensated accordingly. If you don’t review your values, you may find yourself under-insured. Coinsurance Penalties Yes, you may pay a bit more in premium but you could save thousands of dollars in the event of a claim.
Practice loss prevention.
Having a loss is not fun. It creates stress, loss of income, impacts the time you have to spend on your business. Many of those costs are recovered because of your insurance however you will not be covered for your stress or your time. For more information check out some of the recommendations at the Insurance Bureau of Canada Risk Management and Loss Prevention For more information, please reach out to firstname.lastname@example.org
Save money on your insurance premiums
You will notice that I put this last. Many consumers say they want to save money on their insurance and that becomes their first priority. However, if you haven’t completed steps one and two, you are putting yourself at risk. Speak to me about how implementing loss control measures, increasing deductibles and self-insuring might help you save money on your premiums. Reducing Premiums not Protection
Your insurance protection needs to keep pace with the changes – economic, political, competitive and insurance company results. An annual review with a qualified insurance professional should be part of your business plan.
For more information and a no-obligation, no-pressure review, please reach out. I’m always happy to provide information to help you and your business survive in the event of a loss.
Home Base Businesses can affect your home insurance!
Having experienced the flexibility of working from home many employees are reluctant to return to the 9-5 day at the office. Many of those employees either through attrition, the “great resignation” or “it’s the right time” have decided to open a home-base business.
Let’s look at how your Home Base Business affects you!
- Home insurance policies exclude bodily injury or property damage arising out of the commercial use of your home. Someone coming to your home to pick up a product they purchased from you slips on the icy sidewalk. Because they break a leg they may sue you for bodily injury. If so, you may have no insurance protection.
- There will be limited coverage for business contents on your home insurance policy. Do you know what that limit is on your policy? If the property leaves the premises, then you probably won’t have coverage at all.
- Because you are you a hairdresser, massage therapist or a personal training, you are considered a professional. Separate coverage is required for errors and omissions.
- Are you using your garage or basement as a shop? Start a fire? You may have no coverage for your home or personal belongings.
Check with your home insurance provider. When you do, there will normally be three responses:
- Your home insurance policy can be extended to protect you to some degree.
- They may be able to offer a separate business policy or you will have to prove you have coverage with another insurer.
- They will ask you to move your insurance elsewhere unless you cease the business operation.
There are also legal and financial issues that need to be addressed. Reach out to your legal and financial advisors to find out the advantages or disadvantages of incorporating your small business.
Make sure that you take the necessary steps to ensure that you have the protection you need.
For more tips check out Business Insurance for the Entrepreneur
If you want further information please reach out to email@example.com
I know that the first thing you do when you receive your policy is to sit down and read it. NOT!!
So, I thought I would give you an overview of what that insurance contract includes. In other words, use the KISS principle to explain it.
Insurance is a contract between you and your insurer and believe it or not, there is no such thing as true “All Risk”. Insurance is not, and was never designed, to cover everything! Generally, all insurance contracts include the following sections with conditions, exclusions and limitations:
- Declaration’s page – describes, who is insured, when, amounts of insurance and premium
- Insuring agreements– what are you covered for
- Exclusions – what’s not covered
- Conditions – Certain requirements or conditions that are required for coverage to be valid
- Definitions – Words that have clearly defined meaning for your contract
- Warranties – Things that you must do or you may not have coverage
- Limits and deductibles – How much insurance you have and what is your share.
- Endorsements – changes to the above
- Signature clause – Signature of the official signing to the agreement
You have rights in that contract.
You also have responsibilities as required by law under the Insurance Act of Alberta. These are called Statutory Conditions and must be included in every property or casualty policy issued in the province of Alberta. There are additional Statutory Conditions for Auto Insurance, many but not all of them, are similar. We will talk about the Auto Insurance Stat Conditions in a future blog.
- MISREPRESENTATION – Don’t lie or tell a part-truth to an insurance company. If you do, they can void your policy or rightfully refuse to pay a claim.
- PROPERTY OF OTHERS – You can’t insure something you don’t own, have a financial interest in or have assumed responsibility of.
- CHANGE OF INTEREST – Insured losses occurring after an assignment due to bankruptcy, insolvency or change of title by succession, operation of law or death are covered.
- MATERIAL CHANGE – If any conditions of your situation or property changes, you need to tell your insurer. If you aren’t sure, ask.
- TERMINATION – A contract can only be cancelled by you on request at any time or by an insurance company giving written notice. Certain penalties may apply if you cancel.
- REQUIREMENTS AFTER A LOSS – No don’t just walk away. You must:
Right away tell your insurer when and how it happened
Provide a proof of loss (your insurer will give you a form to complete)
Prove the amount of your loss.
Co-operate with the insurer and provide them the records they request.
- WHO MAY GIVE NOTICE AND PROOF OF LOSS – If you can’t provide or don’t provide the Proof of Loss, it can be given by your agent (under certain conditions) or any one to whom some or all of the insurance money is payable.
- SALVAGE – You must protect your property from further loss or damage after the occurrence and the insurer will help you pay for it.
- ENTRY, CONTROL & ABANDONMENT – The insurer has right of access to your property but they can’t take control or possession without your consent and you can’t just walk away from it.
- IN CASE OF DISAGREEMENT – This one is important! You have the right to a dispute resolution process prescribed by the government if you don’t agree with the amount the insurer will pay to repair or replace your property. Here’s some more info for you – Insurance Complaints
- WHEN LOSS PAYABLE – The insurer has 60 days to pay you after you file your Proof of Loss.
- REPAIR OR REPLACEMENT – Unless you have entered the “Dispute Resolution Process” outlined in item 10, the insurer instead of paying you, may repair, replace or rebuild and must start within 45 days of you filing your Proof of Loss.
- NOTICE – Written notice can be delivered or sent to the Head Office of the insurer in the province. The insurer must reach out to you at the address shown on your contract.
Now comes the fun part. You can’t take this to the bank or the courts. This is the condensed version of the Statutory Conditions to help make it just a bit easier. If you want to know more, then read your contract, talk to your insurance provider or better still call me!
I’m always happy to help you decipher the legal jargon in your contract. Reach out to firstname.lastname@example.org or 587-597-5478.
Sitting in a waiting room the other day, I struck up a conversation with a gentleman (let’s call him Bob).
He was waiting for his fiancé and the conversation eventually turned to what we did for a living.
Bob’s company, where he had worked for many years had just closed down, leaving him unemployed. He wasn’t sure what he would do yet but said he might be able to semi-retire as he had a skill-set developed over the years in Safety that could be part of a new consulting practice.
I was happy to share that I had been in the general insurance business for many years specializing in commercial clients. In addition, I consulted with a couple of industry stakeholders helping consumers deal with misunderstood and contentious insurance issues.
So, what would his reaction be? Would it be the inevitable negative response? “Oh, insurance companies never pay.” “They make tons of money.” “They are just here to rip us off.” I wasn’t surprised when his response was the “tons of money” response. Another comment he made was “insurance is just insurance”.
To that I replied that he was not alone in how he felt because as far as I was concerned, sometimes our industry does not do a good enough job of explaining the whole “insurance” thing to the consumer. The conversation revolved around a number of factors after that but let me share some of those with you.
“They make tons of money”
Yes, insurance companies make money. That’s the whole idea of being in business, isn’t it? Whether you are a business owner or an individual you need to make money to survive. The insurance companies are no different. It’s really not about making money though. It’s really about how much is too much? What amount of profit do you feel is an acceptable amount?
The one thing Bob didn’t know was that insurance industry statistics are readily available.
I thought an overall industry-comparison might be helpful.
- According to Statistics Canada “From 1996 to 2000, the average annual rate of growth in operating profits was 10.5% compared to 10.3% earned between 1991 to 2000.”
- The entire Property & Casualty Industry based on IBC 2020 Facts in Canada from 2013 to 2019 was 7.5%.
And finally let’s take an example from a report I found on line from Macrotrends
” Royal Bank of Canada net profit margin as of January 31, 2021 is 20.19%.”
“Insurance is just Insurance”
Bob’s comment was interesting. What is insurance, I asked? Well, it’s something that takes care of you when something happens. It should cover everything.
Yes, and a car is just a car. Right? Not if you ask any car buff. Normally if you go to buy a car you know the manufacturer, model, year, options and all the other “car stuff” so you know what to ask for and it’s a lot easier to compare the price.
Insurance is not just insurance. It’s a contract with different……
- (manufacturers) or “insurance companies”,
- (models) or “coverage” and
- (options) or “endorsements” available.
The consumer doesn’t normally know the difference and our industry has to take some of the responsibility for that. For many years, price has always been one of the main factors that we focused on. So, when most people buy insurance that’s what they ask for – insurance. That’s when price becomes the determining factor.
The Broker selling the insurance may not take the time to explain the different coverage and options available either because he/she doesn’t know or it may be because “making the sale” is the most important thing.
Don’t get me wrong. There are a lot of dedicated, educated insurance professionals in our industry who truly care about their clients. Just make sure you vet your provider. Check this out! Goldilocks and the Three Bears Insurance Brokerage
The world is changing rapidly and insurance is no different. Our industry focus changes, contracts change and people move from one job to the next. I plan on being around for a few more years as I’ve enjoyed the industry. I learn something new everyday most of which comes from dealing with the consumer. That’s why I’m here. What I do is important. Can you just imagine what our world would be like without insurance? Not sure? Check this out. What if Insurance Didn’t Exist?
Remember I’m always here to help and answer any questions you might have.
Heather Cournoyer, CCIB, CIP Get in Touch
Most consumers have no idea what I’m talking about so let me share a story with you.
A few years ago, a large commercial business owner wanted to “test” me out to see if I could compete with the large insurance brokerage firm that had represented him for years. He had just completed construction of his second large manufacturing location so rather than go to his current broker to add it, he asked me to review and provide terms. He was pleased with the results and we bound coverage.
When the balance of his insurance portfolio was due to expire, we went to work. A proposal was provided to the insurers that I represented. Again, I was successful and the entire commercial account was now represented by my brokerage firm.
Here’s the interesting thing, one of the insurers I had approached and the one that was ultimately successful indicated that the previous broker had “shopped” this account every year for years. They were surprised to learn that the client had never been advised that the broker was “shopping” the account. Nor were they advised that the new insurer’s terms were more favorable than what the previous broker had offered through one of his other insurers.
So, what was going on in the background?
The previous broker was not acting in the best interests of the client but themselves. They had no intention of providing the insured with less beneficial terms. They were just blocking the market so no other broker could get terms. The insured was paying the higher premium amount thus increasing the revenue the insurer paid to the broker. How is that fair?
The insurance tendering process is in no way similar to the well-known construction bidding process.
In construction, multiple general contractors will submit their tender prices to the owner using selected sub-trades as necessary. Those sub-trades will provide their quote to one or many of the general contractors. Just because they submitted terms to one contractor doesn’t preclude them from providing the same or even different terms to the others.
In insurance, most insurers provide terms only to the first broker with complete submission. The insured may have gone to 3 brokers however only the first one will get terms. The other two, who submitted after will not. The first broker has effectively “blocked the market”.
There are a few variations depending on the insurer. The following are some rare market options:
- The insurer will only provide terms to the broker with the most complete submission.
- The insurer will review all submissions and if the information varies from one broker to the next, specifically as it relates to claim, they will decline to quote any broker for at least one year.
- They will go back to the broker/brokers and request a brokerage letter appointing just one broker to represent the client.
- They will accept an assignment letter where each broker is assigned different insurers to approach exclusively.
As to why market blocking even exists, I’m not sure so I spoke to several retired or semi-retired insurance company professionals. There were several reasons why management may have decided to implement the decision to only quote to the first broker with a submission.
- It eliminated the possibility of underwriters playing “favorites” with specific firms or agents.
- Different brokers providing conflicting information may receive quotations based on that conflicting information which would result in terms or prices that were different.
- By quoting to only one broker with the first set of information, it reduces the underwriters’ workload.
- If insurers see the same risk year after year, quite often those submissions go to “the bottom of the pile”. Underwriters have long memories.
In any event, it is my recommendation that to eliminate that potential problem the insured should vet their insurance broker/consultant first and let the broker approach the insurers who would be most appropriate to provide terms. Your broker is representing your business and needs to know all the facts to properly assess the risks, prepare the submissions to the insurers and obtain the best in terms and pricing for you. Disclose everything especially previous claims history as misrepresentation of your situation or previous claims history can leave you without insurance when you need it most!
For information about commercial insurance in the Edmonton area, contact Heather Cournoyer at email@example.com, or call 587-597-5478.