Important but Often Overlooked Coverages

Below is a list of a few important but often overlooked coverages to consider.

When I teach auto liability classes, I often ask the audience what coverage, and what amount of that coverage, is most important. The coverage that receives the least attention is UM/UIM. Yet, for good drivers, UM is likely more important than liability coverage. UM should not be an afterthought or sold only as state mandated coverage.

Why is it important to good drivers? Bad drivers are more likely to be uninsured because insurance for bad drivers is really expensive. Is a good driver more or less likely to cause an accident than a bad driver? Bad drivers, by definition, are more likely to cause an accident. Therefore, good drivers need more protection against bad drivers than they need for themselves in the unlikely–and it is unlikely–event they cause an accident. Good drivers causing accidents is a relatively rare event as a percentage of all policy years.

This is especially important in those remedial states and for those policies with archaic definitions of underinsured. In those places and policies, underinsured may be defined quite unethically. It will be defined along the lines of under the state minimum. For example, if the state minimum is $50,000 and the driver carries only $25,000, the underinsured amount is $25,000. The underinsured amount should be the difference between the claim total and the amount of insurance carried. Be very, very careful in these situations because selling only an extra $25,000 is pretty useless.

Aside from the fact that a huge proportion of property is materially underinsured on a regular basis, it is safe to say that a majority of property is materially underinsured for ordinance coverage. Ordinance coverage is a separate replacement cost estimate, and it is not just for older properties, especially in states bent on mandating massive “green” energy initiatives. Rebuilding a property with all the carbon neutral, energy efficient, solar panels, vehicle charging stations, likely soon “greener” concrete, and so forth can add 100% to the replacement cost of some properties. Add in the upgrades for wind, and you have a situation where people cannot afford to rebuild, which is common.

Then consider earthquake and flood. Can you even find adequate ordinance coverage for these perils? Elevating a building 14 feet or adding earthquake-resistant structural supports may be cost-prohibitive. If so, can the client rebuild elsewhere?

The collapse of the condominium in Miami was a wake-up call on many levels. One aspect I do not see resonating adequately within the insurance world is the importance of assessment coverage. The assessments on some properties by homeowners’/condo owners’ associations are now in the six figures. When owners cannot afford the assessments, they may lose the value in their property.

Even when the homeowner has no direct damage to their property, these assessments still apply, and educating insureds about this possibility is important. For example, I recently read in a local paper how a homeowners’ association is insolvent, and each homeowner has been assessed more than $100,000. How many policies have you sold that would cover that assessment?

The condo situation is more obvious because rehabbing a condo that has structural problems is far more expensive than paying for the homeowners’ association’s pool and common area. And yet coverage is usually far more limited because much less coverage is generally purchased on most condo policies.

Workers’ compensation is often thought of as simple coverage, and relative to most coverages, the policies are simpler. But there is a myth that will not go away: business owners cannot qualify for workers’ compensation. And beyond that myth, many agents tell business owners they don’t need workers’ compensation because the law does not require them to buy it for themselves.

The fact that the law does not require someone to buy insurance is not a reason to forego it.

Workers’ compensation for owners is likely the best health insurance they can buy for the price. There are often no limits outside statutes. There is no deductible in standard policies. It is a disability policy that may pay forever. It is a life insurance policy. And it is cheap for owners. What does a health insurance policy cost versus a workers’ compensation policy? Health insurance is running 10-20 times more expensive for less coverage. And the coverage is not redundant.

A majority of health insurance policies likely now exclude coverage for any injuries that could have been covered by other insurance. This does not mean “covered.” It means “could” have been covered if the insured had purchased it. To advise someone not to buy comp on themselves because their health insurance covers them, especially without reading their health insurance policy, is to invite one big E&O claim that should be a slam dunk for the plaintiff.

There are at least seven types of business income coverage commonly available, and likely closer to 10. Can you name them? If you cannot name them, you are likely not offering what is probably the most important property coverage. Replacing a building is relatively easy compared to replacing a revenue stream.

The reason cyber claims are so damaging to small and medium-sized businesses is the revenue interruption, more than the ransom.

Business income coverage is complicated from many perspectives. One is that the way it is typically taught in insurance classes, particularly how the limits are calculated, does not track with the way claims are often settled. The calculation methods are different, especially when litigated.

Another reason is because standard business interruption has so many exclusions. One reason there are so many types of business interruption is to address the exclusions.

And last, the idea that Actual Loss Sustained (ALS) is the easy-button solution that solves everything and keeps agencies out of E&O claims is a myth. ALS has so many holes that it should only be recommended when the insured signs off on all the caveats.

These are just a few important coverages that need more attention if you truly care about your clients’ welfare.