Katie’s Blog – The Insured Agent

Beware the Builder

There is a major construction site near my convenience store stop in the morning, so I am stuck thinking about builder’s risk these days. What makes matters worse is the various problems they seem to have. They have run the gambit of OSHA violations, municipal violations, union accusations, theft of equipment, and problems with subcontractors.Highrise

I have reviewed all of my books to make sure I am not insuring anything similar. Here is a short synopsis of what I know:

Other Insurance

The builder’s risk policy and contractor’s actual commercial general liability (CGL) policy are two separate policies. Builder’s risk only covers property – there is no liability involved. If the employees decide to drag race the front loader and the compaction roller and they end up injuring themselves or some innocent bystander, the builder’s risk policy will not pay out for any negligence or injury.

In fact, there is an ‘other insurance’ clause on both the CGL and builder’s risk policies. In relation to job completion, the builder’s risk policy generally runs three, six or twelve months and/or completion of the job. If there is a loss after job completion and the adjuster shows up to find the job is now completed and is inhabited, the claim most likely will be denied.

Additional Insured

No matter the size of the job, always ask if they are going to use subcontractors. The builder might hire an HVAC guy or a roofing guy to complete the job. That contact may require the subcontractor to be listed as additional insured on the builder’s risk policy.

Make sure you advise them to call you if they hire anyone midstream so you can add them onto the policy.

There are carriers that are touché about additional insureds and extending liability, so have some contractual proof in your back pocket.

Existing Structures

I have a client who fixes up old homes and flips them. After a couple of years doing that he decided he would buy an overgrown lot and build a house. When he had his guys clearing the property they uncovered a small lean-to in the brush. Since the structure was somewhat sound, he decided to refurbish it and make it part of the property. Two months into the job, the structure was destroyed by a heavy windstorm. This was not covered.

It was no great loss to him, he did not put in a claim; however, he did ask and we discussed the property more fully. Some policies do allow you to endorse this coverage onto the policy, so check with the carrier to see if you run into this.

Code and Ordinance/Cost Increase

If you have written builder’s risk you know contractors often opt to decline this coverage. The rationalization being it will save premium.

Granted it may be cheaper; however, if there is a loss of the site, the municipality is going to come in and tweak their first assessment which in turn is going to cost more and/or may require additional equipment, subcontractors, and manpower.

Further, most of the larger projects are going to be twelve-month policies and may need that extension. If we are talking a year into the job and there is a loss, the contractor should be aware, prices may be higher than they were a year ago when he first started. So, discuss this option with them as well.

The only other place I talk extensively with the insured is if they have replacement cost or ACV coverage. There are two different types. Make sure you are clear with the carrier which one you are writing.

I also like to casually visit and/or drive by to see what is going on there. Builder’s risk is an awesome way to get your feet wet in the inland marine spectrum of insurance. The skills you learn and develop here will help with writing the larger commercial policies.

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Looking at Insurance Rating Scales

If you work in a call center or an MGA, you probably have that ominous posted note somewhere on your desk or computer screen with a letter written on it – ie: ‘A’.  If anyone without an insurance background were to sit down at your desk, that would be the first thing they would throw away, right? Happy Businesswoman (woman, girl), Big hand grabbing the wick (extinguish, put out bomb flame)

That information is there because of once every month or so, we get the call from the astute insured who wants to know what our AM Best rating is currently.  They want you to know this off the top of your head.  Since most of us are there to answer coverage questions or discuss claim resolutions, here are three reasons why AM Best is so important.

Financial Strength

AM Best was founded in 1899 to report on the financial strength of insurance companies.  They are reporting on companies worldwide – not just the US.  No one wants to hand a ton of money in premium to a company who cannot function financially.

It should be important that the insurance company has the proper amount of funds and reserves on hand to pay a claim.  Since many of them take any leftover margin and invest it into the stock market, back in 2008 -2009 when the stock market crashed, a good portion of those rating scales dropped from ‘A’ to ‘A-‘ or ‘B+’.

Getting the Benefits

Now that the ‘Fed’ has increased the rate, those letters should be picking up again; which in turn should mean a company with a high rating like ‘A’ or ‘A+’ would be benefiting from the best premiums.

Trust in the Company

Even though the majority of customers value premium amount and service when considering an insurance company; AM Best highlights what matters the most – claims service and payout.

The higher the rating the more likely the company will be in business when claim paid.  If AM Best has been advising of a low grade it is a precursor to a company becoming.  No one wants claims and coverage to be in jeopardy.   If the AM Best rating is ‘A’ or ‘A+’ then the claims reserves and payout should be top notch.

All in One Basket

It can be daunting for the college graduate looking to the financial and insurance sector for employment.  Especially if they are considering an entry-level position and given that nearly 75% of millennials are failing to adapt to processes, policies, and environments. A good portion is labeled already as job hoppers (employment 18 to 24).  What is the best road for someone starting out?

First, according to a study done by Bartlett 60,000 new hires will be needed to fill insurance staff retiring.  There will be plenty of open positions, right?  The entry-level position; however, will be more call center than sales due to the new 24/7 consumer expectation.

Much to the insurance company chagrin, a good portion of them will need to obtain their insurance license.  The Gramm-Leach-Bliley Financial Services Modernization Act (GLB) exempted officers, directors, and risk managers from mandatory licensing.

Insurers wanted their CSR/call center representatives exempted as well saying this will unnecessarily increase expenses for insurers to reduce timely service to customers.  Although, they will license entry level/call center representatives, moving up the ranks will be much harder for most.

Another option is to consider real estate. Entry level means becoming a real estate salesperson, training under a broker.  In that time, salespersons reap the benefits of sales training, marketing/staging strategies, and commissions.

Unfortunately, brokers do not pay to have salespersons licensed.  Not all real estate companies have specified training and hiring.  Real estate agents starting out have to put out a minimum of $2000 of their own money.  So, the simple graduate looking for quick easy money may instead become bankrupt in trial and error situations.

Or consider a banking license. The larger companies like Met Life or Prudential will pay for the series 6, series 7, and/or the life license.  Sales personnel would be required to sell annuities, stocks, and life policies.  They will also provide sales and marketing training.

For top sellers, there are ample rewards and initiation into top seller social clubs.

The final option is the ‘triple threat’. That would be to start out in either a property casualty or life agent and then build from there to get all of these licenses.  Then get a business loan, and open a very lucrative agency for real estate, P&C, and life and annuities.  Almost a one-stop shop for customers needs.

Companies like Geico (Berkshire Hathaway) and Prudential have fingers in insurance, banking, and real estate.  As for independent agents, there aren’t many like this out there who do all three, but maybe some of those up and coming millennials can change that.

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The Dwelling Fire Evolution

Over the years, I have noted one policy that keeps changing and that is the dwelling fire policies.  I assume because insureds are purchasing more rental properties (rental properties are now 50% of the market), they have evolved as well.  Here are three reasons why you should have a dwelling fire policy on a rental property.

Liability:Padlock

The biggest one of all.  If someone is injured within or just outside the rental property, a dwelling fire policy can provide up to $1 million in liability coverage.  Not all companies provide liability for the dwelling fire.  However, more recently, many have started to include this coverage as it is part of the mortgage request.

In some cases, the insured may extend liability from their homeowner’s policy to the property, but there may be stipulations involved such as ‘rental property exclusion’.  In other words, the insurer will extend only to a secondary home, not a rental location.

As an example: A recent judgment against a rental owner in Ohio where a fire killed two adults and two girls.  The insurer settled on a $360,000 payment because the rental property lacked smoke detectors.

Loss of Rent/Fair Rental Value:

The rental burns down and now the insured’s tenants need someplace to live.  The homeowner’s policy won’t pay them, only a dwelling fire will include this coverage.

For instance: In Maryland renter, Howard Stanback, was displaced from his rental unit due to a sewer backup.  His landlord is searching for another place for him to live until cleanup can proceed.  In the meantime, he is stuck in a hotel.

That hotel stay is covered under Fair Rental Value.

Personal Property and Replacement Cost:

Maybe the insured has furnished rental units that come with couches, chairs, beds, and tables.  Under the homeowner’s policy, there is a commercial use exclusion.  If the insured makes money off the home any claim – like damaged or stolen items – it is excluded and therefore denied.

Under a dwelling fire policy these items are not automatically covered; however, the coverage can be added with an endorsement and an additional fee.

It is fair to note that the dwelling fire policy comes as a DP1, DP2, and DP3 – with the DP3 being broad or ‘open peril’ form.  I am referring above to the DP3 as this is the most popular and offers the best coverage.

The dwelling fire policy should be used for 1 to 3 family rental homes.  Anything with four families and above would require a commercial policy.

In comparison, the homeowner’s policy is much cheaper than a dwelling fire; however, it is necessary for the proper coverage.

For the Special Insured

We have all seen the end of the world movies. The wasteland of stuff that is not covered – no catastrophic events, no confiscation by government authorities, no radioactive contamination, and no nuclear weapon discharge. Even then, the agent is thinking – how can I get that coverage.

Most likely, if something should occur, the government will step like they did after September 11th, and pass a legislation that encourages the insurance industry to re-evaluate. Further, our government will also help carry the burden as they have done in the aftermath of natural disasters. In the meantime, it is always smart has a workaround in place.insurancepolicy

For me those movies allow the real beauty of insurance to shine. Specialty companies allow underwriting to work magic. Underwriters can add/delete coverages to the policy. If your underwriter is going back and forth with you questioning things, don’t knock it, they’re trying to put something together for you.

In fact, if you need something more specific to fit your need, in most cases, you can get it. For instance, the named driver exclusion on automobile policies. If you have a less worthy driver in the household, but the rest of the risk is clean, you may be able to exclude that driver. That means, by signing a document, the insurance company is waived from covering any damage that driver is liable for over the course of the policy.

That excluded driver, he can be placed on a non-standard automobile policy. This offers minimum state limits and coverage for poor drivers and insureds with a bad credit history. This might entail further requirements and state forms like SR-22’s, however, it is still an easy fix.

What about the insured that legally races his vehicles? Yes, there are policies for this type of usage through specialty carriers and many racetracks can direct you and your insured as well. They may even offer additional coverage for the trailer that carries the car to the race.

Generally speaking, in the homeowner’s area, there are different types of policies, basic, broad, or special. Even here, you can add extra coverage for sewer backup, mold, additions, appurtenant structures, or scheduled items. In some states, like California, additional policies exist for earthquake and, like Florida, policies for sinkholes. Maybe your insured has renters, household staff, or a home business. These can be accommodated and linked to the homeowner’s policy through some companies.

In commercial insurance, the options for the good risk are practically limitless. There may be a higher premium involved for such coverages and additions. Different options of payment or coverage are always a plus.

Remember, most insured’s think an insurance policy is a saving account for when bad things happen. They are not thinking about risk, reserves, or premiums. If the agent has done their homework about the insured and gone over all the exclusions with them, when that adjuster arrives, yes, all they should expect is a check.

Exclusions are in place to save premium and reserves. If the risk is good, and the company is willing, the underwriter might be able to remove some exclusions. Maybe there would not be insurance coverage for those end of the world scenarios, but there should be some underwriting magic to help indemnify the good risk for tomorrow’s claim.

 

A Change in Contract

When I sit down with an insured to start a policy. I mention then that they are signing a contract for themselves. They can have a legal guardian, an office assistant, their girl/boyfriend call for payments, but if something changes this contract, we will need to hear from them directly.

DivorceOne of my first calls I took as an insurance agent was a father of the second named insured on the policy my company held. It came in the morning, right after I started my day. By his tone and voice, I could tell he was anxious and upset. I could hear a weepy person in the background as he spoke, I assumed it was his wife.

He told me his daughter, my insured, was in the hospital. It seems the previous night, the first named insured, had taken the family car (our insured vehicle) and rammed it into the family home, also covered under the same company. He had then gotten out of the car with a hatchet or axe and chased the second named insured around the house, slicing her several times.

There were no children, just the first and second named insured. The family dog had died in the crash. The entire front of the house was demolished and, as we were speaking, the town engineer was declaring it uninhabitable.

It is obvious that this relationship ended in divorce. This is not a call you get every day. I would say on average you should have had at least one after six months in insurance. In this case, I transferred them to a claims representative.

If they had requested to make any changes, I would have had to decline. If you look at any policy definitions pages, the policy starts with this line: In this policy, ‘you’ or ‘your’ refer to the named insured shown in the Declarations and: (1) spouse; or (2) party who, within the named insured, has entered into a civil union, recognized under law.

Because of that clause, you may have to bear witness to one of the following: (1) divorce situation, (2) the death of an insured with surviving spouse, or (3) the death of an insured without a surviving spouse. Here are some examples and solutions.

The Divorce Situation

According to the National Center for Health Statistics (NCHS) as of 2011, the divorce rate in the United States was 3.6% per 1000 couples. Personally, my stomach lurches when I come across a policy marked ‘divorce situation’ with asterisks and bold lettering.

No one wants to be added to the divorce proceedings witness list; so proceed with caution. Once you are aware of the situation let their carriers know. Before you start moving things around on policies, try your best to make sure the divorce is finalized.
Get documents like titles, deed, etc. if they want to change names and beneficiaries. If necessary, get a statement in writing. Please remember you are dealing with very angry and upset people who have a lawyer on cell phone speed dial.

Death of An Insured with Surviving Spouse

In marriage, the rule applies – everything that is mine is your and vice-a-versa. Insurance carriers rarely ask for a death certificate. I have worked for a couple who will scold representatives for asking for it up front. If you are not familiar with the insured, I would get it.

I have had one spouse tell me the other spouse was deceased when in fact they were not. It turned out to be a nasty divorce. Yours truly ended up getting deposed.
The carrier will also have a copy of the application on file and will be able to see if the insured was married or not. Once they have the documentation and/or statement, the deceased insured would be removed and the survivor would then become first named insured.

Death of An Insured without a Surviving Spouse

In these cases, you may be aware of possible changes to the policy due to the insured or their children providing you with a power of attorney document. This is a legal document held by a person named by the insured that gives power to that person to act on behalf of a living insured with respect to medical care and finances.

If you have someone calling all the time a policy and they are not the named insured, it’s best to see if there is a power of attorney in place. If not, get something in writing from the insured.

Once the insured has passed, you may be dealing with the Executor or the person named in the insured’s Will who is responsible for taking care of the remaining financial obligations for the deceased insured. Please do not ask the Executor for a Power of Attorney.

This also does not mean you should place the policy into the Executor’s name. The policy will most likely be placed into the ‘Estate of’ and then be non-renewed. Once the estate is settled and the remaining items and monies are distributed, then you may start a new policy for who got this or that.

Keep in mind your duty is always to your insured, no anyone else. A good relationship with the insured will definitely come in handy here. Potential clients may appreciate the kindness, trust, and confidentiality you have exhibited.

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Worrying about the Warranty

We’re having a run on car warranty scams in my area. When a customer comes in to question, I call over to their dealership or advise them to pay a visit before purchasing anything. I do this because coverage I want them to have the best coverage.

Car RepairIn my driveway, I have a 2001 SUV. This car has 185,000 miles on it. We keep it to use in the snow and bad weather because it handles nicely and gets the job done. It’s also a good to use if one of the newer cars is in the shop.

I carry liability only on this car because it has no value. The car warranty ran out years ago. Yet, every year about this time, we get the car warranty notices and/or phone calls warning us that the warranty has expired. Rest assured, if anything happens to our old SUV, the car is getting junked – not repaired.

I am not alone here. At the agencies I have worked at, I have customers who want to buy a car warranty from me. They often produce the letter or refer to a phone call they have received. So, with a heavy heart, you have to explain that it is a scam.

There are two things to keep in mind. First, they may already be covered by the dealership. For instance, when the warranty on the SUV engine, the warranty protection on the axle, sensors, and dashboard modules continued for another six months.

Second, customers often have no idea what is covered or even if the dealership/repair shop they use will accept the warranty they purchased. The majority of your car manufacturers do not condone these warranties and their dealerships will not accept them – so the customer has paid for coverage they cannot get.

One insured who purchased the warranty did not receive a policy booklet, insuring agreement or even an exclusion list. There was no telling what was covered under the warranty they purchased or how long it was good until. To me, that is no guarantee for coverage.

You don’t have to look far to see lawsuits against legitimate car manufacturers and/or dealerships. So, you can imagine if the car warranty offer was legitimate, they would need a ton of backing. If they didn’t, the company would be out of business sooner than later.

It’s best to warn customers – if you’ve gotten the call/email, they have. Use it during retention, write a newsletter about it. Our insured’s need to know.

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