Uncovered Claims

I have been talking with a banker.  He emails the following: 

"Most of our renewals are in the fall.  I may give you a call prior to those renewals to talk."

My reply: 

"Always glad to talk.  Renewals are best managed when started 120 days ahead.  Of course a coverage review catches uninsured/underinsured areas at any time - perhaps just before a loss."

The holes in your insurance do not wait for renewal.  Claims occur whenever...

Coverage problems are discovered either when a claim isn't covered or when someone discover the coverage gap.

I'm asked when is the best time to review insurance coverage.

My answer is, "just before an uncovered claim."

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Moving Day!

To update the functionality of this blog I have moved it to...

http://scottsimmonds.blogspot.com/

Please visit me there and subscribe to my posts.

Best,
Scott

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Bank Insurer Ratings

I work with a variety of insurers in my efforts for my bank clients. I review coverage, help with claims, and manage bids for community banks.

Here are the latest ratings by AM Best and Weiss Ratings for a sample of the insurers who work with banks.

.		Q3 2011
.		A.M. Best Rating	Weiss Ratings
.	ABA Insurance Services - Everest Re Group Ltd	A+ XV	C
.	BancInsure Inc	B++ VI	C
.	Chubb Group of Insurance Companies	A++ XV	B
.	Cincinnati Insurance Companies	A+ XV	A-
.	FinSecure - StarNet Insurance Company - W. R. Berkley Group	A+ XV	C
.	Kansas Bankers Surety - Berkshire Hathaway Insurance Group	A++ VII	B
.	OneBeacon Insurance Company - White Mountains Insurance Group	A XI	B-
.	Travelers Group of Insurance Companies	A+ XV	B
.	Zurich Financial Services Ltd	A+ XV	C
.
.

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Simmonds Business Insurance Index™

The Simmonds Business Insurance Index™
November, 2011

Renewal Premiums - Slight Increases
Renewal Coverages - Negotiate - But Be Ready To Lose
Buyer's Outlook - Long-Term: Prices Increasing / Coverage Restrictions

The soft market is coming to an end.  Underwriters are asking questions.  Insurers are restricting writings in areas.  Coverages that were easy to get are requiring tough conversations and negotiations.

I had an underwriter refuse to offer crime limits over $25,000 to a wood products company the other day! Six months ago we could have probably negotiated for $100,000 at no additional premium.

Carriers are reluctant to offer renewal quotes early because they are afraid to miss an increase in the market premium.  There is breath-holding going on about the January reinsurance renewals.

This will not be pretty.

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Limitless Insurance For Banks

Sent to the ABA Journal:

To The Editor:

For well over 100 years, the insurance industry in America has done an exceptional job of offering protection to America's community banks. As the banking industry changed, so did the insurance protection offered to financial institutions.  As technology changed, bank insurance changed to meet the new exposures.

It's time for the banking insurance world to take the next step.

As an insurance consultant to community banks, the most frequent questions I'm asked is, “How much coverage should we buy?”

It is an unanswerable question. No bank can be totally confident that the amount of insurance they have purchased will be adequate to meet future claims. The risk of running out of insurance is an exposure often considered by bank executives.  Is $1,000,000 enough?  How about $5,000,000?  Is it possible that we could be sued for $20,000,000?  Is a bond limit of $5,000,000 adequate?

You may as well ask, "How high is up?"

Currently, all insurance policies for banks have limits.  Each policy describes the maximum dollar amount that will be paid by the insurer for covered claims.  Every bank in America could potentially run out of insurance.

Of course few, if any, will.  However, there is a risk for every bank.  More than a few bank CEOs and CROs stay up at night worrying about such risks.

Fortunately, this is a risk that can be easily borne by the insurance industry because of the law of large numbers. With many banks insured, few will have claims.  Fewer still will have big claims.  Few (if any) will run out of insurance.

I dare say that removing the risk of running out of insurance is a value that bankers will pay for. The time has come for insurance companies to offer insurance contracts without limits of coverage.

Certainly, some banks will continue to select an amount of insurance on their bond and their Directors’ & Officers’ insurance. Other banks, however, will recognize the value of an insurance policy where the threat of running out of insurance is zero.

Think of the benefit to your directors, officers, and stockholders of the bank knowing that they cannot run out of insurance protection. Would a bank pay an extra 20% for this feature? (I would recommend it.) Is it still valuable at 25%, or 30%, or 50% more? Individual banks would get to decide.

Insurers too can decide.  Some will scoff at my idea.  Some will offer it only to their very best clients.  Ah, the wonders of a free market.

Those insurers who take my suggestion stand to gain in premium and client loyalty.  Those who don't can continue on as they do now - hopefully losing market-share to the innovators.

May I be so bold as to suggest that you point your insurance agent to this letter.  Ask your insurer to consider the idea. Perhaps this will start a discussion to the further improvement of the insurance protection purchased by community banks in America.


Scott Simmonds
Insurance Assurance Consulting

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The Condo Renewal Blues

Got a call this morning from the manager of a residential condo complex here in Maine.

Last year's premium was $12,000.  Traveler's non-renewed the policy, as it is "coastal."  The manager worked with the current agent; several board members tried to help by going to other agents.  This left the insured with multiple agents all going to the same insurers, multiple quotes from multiple insurers, several from the same insurance company, but different premiums.

The current policy expires in eight days.

The manager is frustrated, confused, and looking at a higher premium (I won't tell you how high, as agents are still working on this and may read my blog).  Big mess.  Nobody is happy; not the manager, not the board, not the agents, not the underwriters.

I offered a solution that often works: go to a direct writer who has not been in the game yet.

I don't know if this will solve the problem.  I sent them to an agent for Nationwide who has done good work for other clients.

Sometimes the solution to a problem is a very hard right.

It does not untangle the rat's nest.  It throws it out.  As I said, a hard right.

Now, to the preventative:

Renewals must be managed by the insurance buyer.  Nobody looks after your business like you do.  Take it on and hold your agent accountable.  Set dates and expectations.

If you are going to get competitive bids, that process needs to be managed, too.

There can only be one captain of the boat.  The condo above had too many people contacting agents with no coordination.

You must assign insurers to agents.  Find out which insurer each participating agent wants to use.  Assign insurers to the agents based on the requests of the agents.  Someday I hope that insurers will provide quotes to multiple agents.  Until then, we must assign insurers.

If I hear how this works out, I'll let you know.

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Work Comp Classifications

From a reader...

Scott:

In presenting our insurance coverage information to a board this afternoon, I was questioned by an HR professional, who sits on one of our boards, regarding our WC classification of employees.  Almost 100% of our employees (except couriers/custodial) are classed as 8810 Clerical.  I reviewed this in-depth with our agent at the last renewal and the conclusion was to continue this blanket classification of most all employees.  The board member is suggesting that perhaps our commercial loan officers should be classed as “Outside Sales” – 8742.

What are your thoughts regarding addressing this again, and what are our risks in the event that the insurer feels we have mis-classed a group of employees?

Thanks,

My reply...

Glad to help.

I don't see this as a risk.  It is, however, something I would have pointed out had you retained me to help with the standard lines of insurance - nudge!

Two issues...

First, cash flow.  It is possible that sometime in the future an insurance company auditor will adjust the most recent policy and the current policy premiums.  That might mean about 70 cents per $100 (depending on your policy's rates) in payroll for those who should be classified as sales.

My second issue is less often discussed.  You have an experience modification as a part of your workers' compensation premium calculation.  It is a ratio of expected losses to actual losses.  An experience mod of 1.00 is average.  0.85 means your losses are below average.  1.25 means your losses are higher than average.

As you are putting payroll in a low rate / low hazard code (clerical) your mod is probably a point higher.  Even if you have low losses, misclassification pushes the mod up - though only slightly, as the relative payrolls are low.

While a higher mod (.01 or so, if that) does increase your premium, you are saving net on premium with employees rated in lower codes.

That said, classification is the insurer's responsibility - unless you are lying to the auditor, and that's fraud.  If the insurance company makes a mistake, it is their mistake.

There is no risk to claims not being paid.  There is no risk of a fine or any penalty.

I normally counsel my clients to sit tight.  If the auditor changes class, then pay the additional premium.

Work comp is like baseball - the other team has to tell the umpire you missed the base.  It is not golf where you are expected to rat on yourself.

Let me know if you have questions.  I am glad to talk about a review of the standard lines of insurance for your bank.

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Slip and Fall Accidents, Insurance Coverage, and Procedures

Your general liability insurance covers you for your liability that comes from accidents involving bodily injury and property damage.  The most common bodily injury event by the general public (not employees) is "slip and fall."

Someone slips and falls in your parking lot or in your lobby.

You should have a policy for handling such events that is well known by your employees, and that includes:

-Make the person comfortable.

-Be courteous and helpful.

-Allow the injured person to decide whether or not they need medical attention (unless they are unable to communicate as the injuries are so serious).

-Get the person's name.

-Get witness names.

-Do not fill out a form in front of the injured person.

-Record the incident and keep a record of the event including the conditions that were present.  Get pictures after the fact.  The report should include comments made by the injured person about the event ("I only had two beers with lunch," is something that needs to be in the report).

-Never admit fault.

-Never berate or reprimand employees in the presence of the injured person.

-Never share a copy of any report with the injured person or his attorney.

Such events do not need to be reported to your insurance company unless the injuries are so serious that an ambulance is called to the scene.  If the injured party calls you about medical bills (or his attorney contacts you), then report the claim.

It should go without saying that if your lobby is slippery every time it rains, you need to consider a different floor covering.  Putting a "slippery when wet" sign out is NOT risk management.  It is admitting there is a problem and that you have not fixed it.

So-called medical payments insurance is also a part of most general liability insurance policies.  More on that in a future post.

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Bad Insurance Agents

OK, I am catching up on my reading of the insurance information service, FC&S (National Underwriter Company).


A few minutes ago I blogged about bad adjusters.  Now its my turn to take a swipe at agents.


Here is the question asked:


A hit-and-run driver hit a car, which in turn was pushed into a building. The building and the personal property inside were damaged. The car was covered by uninsured motorists insurance, and the insurance company is paying for the car. However, the auto insurer will not pay for the building and personal property damage, stating that "as the driver was not in the car at the time of the accident and therefore we [the insurer] are not liable, the hit-and-run driver is." The car caused the direct physical damage to the building, the hit-and-run driver did not hit or even touch the building. Wouldn't the car insurance be responsible for the damages as the car hit the building, not withstanding it was unoccupied? 


AHHHHHHHHHHH!


The agent is asking about LIABILITY coverage.  Liability insurance responds when the insured is responsible for the damage or injuries caused.


Why would anyone think that a parked car is responsible for damage caused by another car?  Basically the agent is taking the position that there was an accident and the insurance should pay.  


No.


There has to be liability before a liability policy will pay.  Insurance 101, day one - maybe hour two.


Of course if some lunatic court says that the parked car is responsible for the accident, then matters change.  The insurance policy does not have a lunatic court exclusion (that I have ever seen).

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Bad Claims Adjusters

Bad claims adjusters are a plague on all our houses.


Insurance adjusters are to be the front line of the insurance transaction - the part of the transaction that we all buy insurance for - claims service.


Here is a letter sent to the insurance information service, FC&S (National Underwriter Company):

"I am working on a complaint that involves whether the auto liability should pay for damages to a third party. The insured states that her adopted son, age fifteen and holding a driver's permit only, took the family car without permission and was involved in an accident. The adjuster is denying coverage, stating that the car was taken without the parents' permission. My feeling is that the child had access to the keys, which are the liability of the parents, so they should be liable for the damages that were caused. I would like to know what your thoughts are."

There is nothing, I repeat, NOTHING, in any auto policy I have ever seen that requires that a person have permission to drive a car in order for the insured to be covered for an accident.

This is basic stuff that any adjuster should know.

The auto insurance policy, like any other liability policy, protects the insured from lawsuit.  The fact that the car is taken (or stolen) does not impact coverage for the INSURED.

Think of the grief the insured is going through over this whole event, then they learn that some bone-headed adjuster is saying "no" to coverage.  

Stress times ten.

I hear regularly from insurance buyers who are fighting claims that should be clearly covered by a policy. Yet adjusters, by ignorance (let's assume its that and not bad faith) cause insureds lost time and often sleep.

Insurers, get rid of incompetent adjusters.  Adjusters, read the policies you are adjusting coverage for.  Read insurance books and study the business.

Obviously there are good adjusters out there.  We need more of you.  We also need you to step forward when you see bad actors in your midst.  Get them out of our business.

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