The Importance of an Educated Broker

Insurance is one of the last professions where most of those in the industry learn 90% of what they do after the end of their formal education. Yes, there are a number of people who hold a bachelor's degree in risk management, but there are only a limited number of schools offering this program. In fact, it's often a topic of conversation among younger insurance professionals to discuss what their undergraduate degree was. Some are business or finance, others political science, and mine is in biology. The most important skills for an insurance broker are critical thinking, problem solving, negotiation, and the ability to explain insurance topics to those outside our industry.

The only requirements to become a licensed insurance broker in most states are to be 18 years old, not be a felon, take a one week class and pass an exam. Oh, and just to make you feel better, we all take the same exam. The licensed office assistant that put you in good hands and protected you from mayhem, the call center rep that helped you save 15%, and me the broker that you trust with your directors and officers insurance for your board of directors. Now there is a scary thought.

So what separates those qualified to click through some computer screens and quote auto insurance, a task that some companies have moved online because it is so simple, from those that write complex commercial insurance? Quite simple experience and training. But how can businesses be sure that they have a broker with the experience they need? The insurance industry uses designations. We have a few industry associations that grant subject mater and general designations based on passing specific courses and experience. The most general designations are Chartered Property Casualty Underwriter (CPCU), and Certified Insurance Councilor (CIC), Associate in Risk Management (ARM) is also popular, as so many brokers serve as risk management consultants for their clients. CPCU consists of eight exams that are all recognized as college or graduate level. ARM is all graduate level exams. I carry both of these designations. There are also more subject specific designations, such as Associate in Reinsurance, Associate in Claims, Registered Professional Lines Underwriter and a few dozen others. They all show that the person you are dealing with has made some level of additional commitment to their industry education. While there are many well qualified commercial brokers that do not carry a designation, this is one of the easiest ways for a non-insurance professional to evaluate a broker.

In short, it's perfectly fine that most of us don't have a college degree in insurance. But, it makes continuing education and industry specific post college training all the more important.  Everyone deserves a broker well qualified to obtain the insurance they need. Make sure your broker is qualified to be your partner.

Blanket Insurance Limits

     So congratulations, if you've come to read about blanket insurance limits, it means you own more than one location. It means you opened one location, learned your lessons, made a few dollars and did opened another. This applies exactly the same to someone that owns two or more apartment buildings as it does to someone who owns two or more of any other commercial building.

    Blanket insurance limits means that a single limit of insurance applies to multiple locations. For example, an appliance retailer owns a total of three buildings, two showrooms and a warehouse. They usually have a total of $2,000,000 in inventory which moves between showrooms and the warehouse. Each showroom is valued at $1.5 Million and the warehouse building is valued at $1 Million. They have a total of $4 Million in insured buildings. They bought an insurance policy with blanket insurance limits for inventory and buildings. So instead of having to split the $2,000,000 of inventory coverage between locations, they have $2,000,000 of property insurance available for the inventory, for any one loss, at any of the three buildings. If they had a large delivery at the warehouse, and then a total loss fire, $2,000,000 would be available to pay for replacement inventory, even if there was still undamaged property at the other locations. It works much the same way for building limit. Since they have a total of $4,000,000 worth of buildings across all locations, They would have a total of $4,000,000 to cover repair / replacement of the warehouse building after the fire.

    So how would this have worked under a policy that listed multiple locations that wasn't blanketed? The insured would have had to select, at the policy inception, the inventory limit to carry at each location. If they said of the $2,000,000 only $1.5 million was in the warehouse, then they would have only had $1.5 million to cover the fire loss. And if they reported the building value as $1 million, thats all they would have had to pay for damage to the building itself.

    Blanketing insurance property limits is a great deal for the insured. It ensures that inventory will still be covered to its full value even if it moves between locations. With blanket limits, the insured can be comfortable that their building will be fully covered even if their replacement cost is somewhat outdated. So why do insurance companies offer blanket limits? Blanket insurance limits are an incentive that the insurance company can give people that are spending more to insure several buildings. From their point of view, it doesn't cost them extra, because the limits are still the same, just applied differently. And because the insured still has to report property values at each location, the carrier knows what the exposure is. Just like everything else, when you buy insurance in bulk you get a better deal.

Private Label Products

Believe it or not, many businesses assume products liability without ever realizing it. Product liability is the responsibility a business assumes for any property damage or injury their product may cause. On the surface, one would think that only a manufacturing company would have this exposure. But that simply isn't true.

I was just in a small salon the other day that had their own line of hair dyes and hair products. The salon owner thought it really made his business look top notch to have their very own line of hair dye, but he got much more than just a label with his personalized dyes.

I asked him if they were standard colors, or if he had a hand in making them. I think it started to hit him, he really did manufacture something. He told me that a representative came out from the manufacturer, sat down with him and helped him customize everything. From the base, to the dyes, he picked it. It was the same for all the other hair products too. That's just how contract manufactures work. They make products at your specific direction. That way, if something goes wrong, all the responsibility rests on the creator of the formula. But the salon owner isn't a chemist, so how could he have known what was safe and what wasn't?

Well, 99% of the time, there are no problems. The contract manufacturer is going to use standard, well tested ingredients. But sometimes things do go wrong. If the products in his salon injured someone, the salon would be primarily responsible, because their label is on the goods. To top it off, the contract manufacturer was based in another country, making it even harder for them to share responsibility.

The principle holds true for many others, not just salons. Food stores with private label "store brands," paint shops, cleaning companies, electronics, even pharmacies. When you put your brand on a product, even if you don't make it yourself, you're responsible for it. So how do you mitigate this risk? Demand vendor's coverage from your contract manufacturer. This is a certificate that says they will defend you if anything goes wrong with the product and that they have specific insurance to back it up. If they won't give it to you, ask them why.

If need be, your own insurance may include products liability and may help protect your business. Be an informed business owner, and discuss it with your broker. Better yet, give me a call.

Do I need Wedding Insurance?

Now that it’s finally warm outside, its not just summer, its wedding season! As you prepare to walk down the aisle, you may have been told you need insurance for your wedding. Do you? After all, isn’t a wedding just a private event? What could you need insurance for?

Well, just to start, if you look hard enough there is someone willing to sell you insurance for just about anything. That doesn’t mean you need to buy it. There are three basic categories that come under the heading of “wedding insurance.” They are wedding liability insurance, wedding gift and jewelry coverage, and event cancelation insurance. While these all cover real things, you personally may not need some or all of them.

Two out of the three of these have elements included in your renters or homeowner’s insurance policy. Wedding liability insurance is a personal liability insurance policy that covers bodily injury and property damage including liquor liability, specifically for the event. It usually costs somewhere from $100-$300 depending on the size of the event. Well, all forms of homeowner’s insurance (including renters and condo) covers personal liability. Personal liability covers bodily injury and property damage that you cause while acting as a private citizen. (Of course there are limits to this, but getting married isn’t one of them and neither is liquor.) Personal liability insurance policies, however, generally cannot list other parties (like your venue) as additional insured, while a special event policy can. Your insurance agent can provide proof of coverage to the venue for you.

The most important thing to do is to make sure the parties covered for the homeowner’s policy are the parties getting married. In this case, it’s not a bad idea to add your spouse to your homeowner’s insurance before the actual wedding day. And, if it was the parents that signed the contracts to rent the venue, than it is their homeowner’s insurance covering the event.

At the very least, ask your venue if they will accept your homeowner’s insurance instead of a special policy – it can be a source of significant savings for something that you already have.

Wedding gift and jewelry coverage is strictly personal property insurance with more narrowly defined covered property. Your homeowner’s insurance provides coverage for your property anywhere, not just in your home. The issue here is sub-limits to covered property. When people think of what could happen to wedding gifts, they are mainly concerned with theft, theft of cash and checks. Actual physical gifts are mainly sent ahead of the wedding. Your homeowner’s insurance usually limits theft of cash to about $500. Weddings often involve more, much more. Some wedding gift policies can cover larger amounts of cash, but require that you estimate the amount beforehand, which presents its own challenge. A better solution might be giving all the cards in a lock box to a responsible member of the wedding party to be retrieved the after the event. If you are in a hotel, give the box to the front desk to put into the hotel safe.

Wedding policies also often cover wedding rings and jewelry. This is universally covered (but limited) on homeowners insurance. Since you will have your wedding jewelry forever, short term insurance doesn’t make much sense. Yes, it’s only a few dollars to add to the wedding insurance policy, but if you annualize that amount, it’s not a very good deal for the year. Fine jewelry should be placed on a jewelry floater, or rider on your homeowners insurance that specifically lists the items and values, and is supported by documentation if necessary.

This leaves us with wedding cancelation insurance. There is no equivalent homeowner’s coverage that you may already have. Event cancelation insurance pays you for your out of pocket expenses should your wedding be delayed or canceled due to a specified list of reasons (and yes “change of heart” can be a coverage trigger). It returns deposits lost to the travel, venue, caterer, photographer, band, limo, et cetera. Before purchasing this insurance, compare it to the refund policies of your individual vendors. If your venue will refund your deposit in case of severe weather such as a hurricane (or re-schedule for no additional cost) then why purchase what is basically a refund policy through insurance? This is an especially important consideration for “destination weddings” where severe weather can prevent travel.

The take away message of this is not that wedding insurance is never needed. Each couple should evaluate what they already have on their homeowner’s insurance and what they actually need. Best wishes to all the brides to be!

Don’t fall victim to copper theft!

With copper currently trading at over $4.00/lb and scrap yards paying $3.25/lb or more, copper is becoming an increasingly attractive target for theft. And, to make matters worse, increasingly thieves are “scrapping” actively used copper to sell.

Most of us have heard of thieves breaking into vacant homes buildings to steal the wiring and old plumbing to sell for scrap value, but with higher prices thefts have become increasingly brazen. Currently, there is an uptick in theft of copper condenser coils from building air conditioners. The Des Moines Register reports on a case that a police officer said was his first experience with air conditioner copper theft, but I can personally testify it is common in Chicago.

Air conditioners contain a large copper coil that is used to exchange heat from the building with the outside. While home air conditioner coils typically weigh in the range of twenty pounds, commercial coils can weigh far more. This makes small and midsize commercial buildings attractive targets. Thieves cut the coils from the units at night. To operate these units must be located outside, and are often behind the building or on the roof. They have a flimsy sheet metal cover that is easily cut away even if locked. Coils are rarely removed delicately, often destroying the unit in the process. Building occupants often go unaware of the theft for days or weeks, until the air conditioning is turned on. The cost to replace the unit often runs into the thousands of dollars for what, at most, is a few hundred paid on the scrap value. To make matters worse, replacing the air conditioner on a commercial building can trigger that the system is brought into compliance with current HVAC building codes, costing thousands more.

As an insurance broker, I have personally been a party to three copper thefts from air conditioners this year. The smallest claim was for just under $6,000 and the largest was for over $25,000. No thief made off with over $1,000 of scrap metal. The economic impact of these crimes is large and growing.

So how can we protect ourselves? Most steps to prevent general vandalism and burglary will also discourage copper theft. Good lighting at night is a must. Exterior recorded cameras are better, and roving watchmen are best, but usually impractical. Don’t leave ladders around the exterior of your building, and fire escapes should be secured to prevent access from the street. When able, often building a fence around exterior mechanical units or the entire roof can discourage theft. Thefts are effectively discouraged not when it is impossible to commit, but when it is substantially harder than other similar targets.

Also – scrap yards enable this problem. Without scrap yards, thieves would have nowhere to sell their take. Scrap yards however provide a needed service for the community and should not be overly regulated. Most scrap yards are already required to record identity and take pictures, as well of keep a record of what was purchased. However, a balance should be struck. Clearly, scrap yard staff must be suspicious of condensers removed with bolt cutters still dripping with refrigerant. Law enforcement can partner with scrap yards to discover and prosecute offenders.

Until that happens, we must all remain vigilant and protect our own property from this rising cause of loss.

Insurance and Hiring a Domestic Employee

Many people have turned to hiring a nanny or part time maid as both parents have obligations on their time and their days get over scheduled. Often, people wonder if they need new insurance coverage. I know this is a small departure from my usual writings on commercial insurance, but I think you may find it helpful.

There are a few things to consider for insurance after you have decided to hire a domestic employee. The easiest is workers compensation. This paragraph is specific to Illinois, and each state has separate requirements that basically fall into three categories. The first category is that usually domestic employees are not required to be covered under workers compensation. The second is that full time employees are required to be covered and the third is that even part time employees are required to be covered. In Illinois, Any worker or workers employed for a total of 40 or more hours per week for a period of 13 or more weeks during a calendar year by any household or residence must be provided workers compensation insurance. However, if the position is part time (35 hours) it is not required. Workers compensation for a domestic employee ends up costing about $600, so it's nice to avoid when possible.

As far as liability insurance, your homeowners insurance will extend coverage automatically. At renewal, you should make them aware you have a regular domestic employee. This would be true of a nanny or any other domestic employee. Your homeowner's insurance covers any bodily injury they may cause to a non-household member and any property damage they may cause in the course of their work outside the home.

Homeowners insurance would also apply as normal (with the deductible) to any theft of your property committed by your employee.

The household's auto insurance also extends to your employee driving your vehicle. So you can have your employee drive your auto without additional coverage. No notification of the carrier is required. Despite what a personal lines agent may tell you, the employee would not be considered a household member and should not be rated on your policy.

Following the above conditions, you should not require any additional coverage.

Workers Compensation Audits

You may or may not be aware, that your workers compensation premium is just an estimate. Sure, you faithfully paid your bills all year, even renewed your policy. Months after your policy expires, the insurance company can send you a bill for thousands of dollars. And can even send your business to collections, because you owe. So how does this happen?

Workers compensation policies are issued on payroll forecasts, but payment is due on actual payroll. And if you admit you can't document one of your subcontractors workers compensation polices, you could owe for them as well. So how do you avoid this? Be informed and document! First - be honest with your broker and help them write an accurate policy. Give them accurate payrolls based on history and expectation. Break out payroll by job duties and help your broker assign good class codes. This helps a good estimate be used for your policy and minimize audit premiums. If you over estimate, you can earn a refund - you will get your money back.

So what happens at the end of the year? You will either get a paper audit form or a "physical audit" where someone comes to examine your records. Do not staff out the audit. Call your broker first for advice. The auditor is looking for ways to grab your money - keep it! If you have employees with split responsibilities - you need to keep payroll records by job duty. In the office 4 days answering the phone and one day making deliveries? Document! There is no form for this, make your own. It will pay off.

Second, the auditor wants to see source documents. Quarterly and annual payroll tax records, payroll records. Know what you have - and know what can be verified. Most payroll reports are generated by employer internal reports. What you can document is the truth. Don't contradict yourself, and you will come out with a no surprises audit. Let your broker be your advocate, and they will tell you what your options are. Don't trust your broker that much? Call me.