Is the Pandemic a Huge Insurance Claim?

As we inch closer to the time when the pandemic is a thing of the past, there remain many pandemic-related unknowns. One question you may have considered is whether your insurance policy might cover pandemic-related losses you may have suffered under a coverage called “business disruption” or business interruption” insurance. The answer, of course, depends on the policy language, but sadly most of these policies only pay forinterruptions that are based on physical damage to your business’ property.

This once-in-a-lifetime event made me question whether my insurance policies cover the risks I think they cover and whether I should be concerned about other uninsured risks? Like most business owners, I have, at best, a rudimentary understanding of what I’m buying when it comes to insurance. Do you understand your insurance policies and what they do for your business, or are you subject to the whims of the carriers when it’s time to renew them? Are you confident you have the right coverage to protect your business and the wealth you’ve accumulated? If, like me, you’ve been feeling uneasy about your answers to these questions, my friend Joe Berg and his team at Lockton can help you gain peace of mind.

Joe shared with me that the insurance marketplace is particularly challenging right now. It starts with the way insurance companies have traditionally made money – not by “earning” part of the premiums, but by investing premium dollars into the open market. Since interest rates have been low for many years, there’s not as much revenue generated from leveraging premiums.

Natural disaster losses are also at all-time highs. For example, in Colorado hail-related roof replacements are occurring at five-year intervals or less, a much shorter period than was the norm. Claims payments can exceed the premiums carriers have collected, so carriers raise premiums for new policies and renewals, eliminate or reduce coverage, and even refuse to renew policies. In particular, insurance companies have introduced new wind and hail damage deductibles that are tied to the property value to replace traditional fixed-dollar deductibles.

Both of these factors, low interest rates and high claims, have combined to put unusual pressure on insurance companies to raise premiums. In some extreme cases, insurance carriers have simply abandoned specific industry verticals. Joe noted that there may now be only two carriers offering a particular policy where there once were twenty or more competitors. The natural consequence of this reduced competition is higher premiums.

Multi-family apartment building hazard insurance premiums are one example of these market forces, having tripled this year alone. This asset class experiences both frequency and severity of claims and owners need to be proactive in risk management. Joe has worked with his apartment owner clients to adopt and enforce operational policies, such as prohibiting tenants from using candles in their apartments or grills on the balconies, to reduce the number of claims. Joe says his job “is to help the client mitigate risk and make the property or business more insurable and as attractive as possible to the carriers, and by doing this increase competition for the client’s premium dollar among the carriers.”

Joe stressed that his work takes time – it takes 2-4 months to put together a solid renewal application. Having a long-term, multi-year relationship with a client is good for both the client and for Joe because a long-term relationship allows the team to gain the intimate knowledge needed to plan for future renewals and recommend adjustments to reduce and manage risk. For example, insurance is more expensive when a company doesn’t have a strong safety culture and record. Improving the company’s safety culture and record can take years. Joe and his team take a pro-active approach to helping clients understand exposure and risk tolerance and taking steps to reduce and manage risk. This pro-active approach helps keep insurance costs down.

In one case, Joe helped a construction company lower its worker’s compensation insurance premiums as well as bring in more business by improving their “experience modifier” (EMod). Every company has an EMod, which the insurance companies use to rate them based on trailing losses or injuries. A company’s EMod can even disqualify the company from performing certain kinds of work. By taking a long-term view and being pro-active, the team actively engaged with the client to transform their safety program over a three-year period and improve the client’s EMod. As a result, the client increased its overall business by a third while reducing worker’s compensation costs by 33%.

When the unfortunate event happens and it’s time to make a claim, Joe and his team at Lockton offer claims advocates who help their clients navigate the claim process. These advocates are industry and claims experts, and this expertise helps them estimate cost or value of the claim. They help the client by advocating on client’s behalf with the carrier to pay the claim promptly and in the amount the client should expect.

For example, Joe and his team recently worked with an IT company that was forced out of its building for a period of more than a year. The client didn’t own the building, and there were lots of complicated variables including a deductible that applied for the first 4 days during which the business couldn’t operate. Joe helped the client strategize how and when to make the claim, which involved an analysis of value of the claim and the impact the claim might have on the client’s renewal application.

For Joe, it’s all about understanding the client and the client’s business so he can represent the client in the best way with the carrier. He is an advocate for the business owner both during the application process and after the policy is issued – including helping the client make sure they received everything they bargained for.

Because most of us don’t know beans about insurance, helping the client know that they’re getting what they’ve paid for is a big part of what differentiates Joe and his team. Joe offers what he calls “Insurance and Risk Management 101,” an explanation of the policy, coverage, and exclusions. “There’s no way around it, you have to have insurance and it’s expensive,” Joe says, “so you should have a working idea of what you’re buying.” One of Joe’s clients shared that the client had purchased insurance and renewed the policy three times with a prior agent but had never gotten an explanation of what the client was buying. The client also expressed relief that, finally, someone cared enough to explain the details of the policy for which the client was paying over $500,000 per year.

Joe describes what he does as protecting the client’s legacy. “If you suffer one incident with a construction vehicle, that single event can take you down,” he says. “You can safety train to prevent accidents, but bad things still happen. Our job is to anticipate the worst-case scenarios and then plan against the likelihood and scope of claims from there. We tailor the coverage, exclusions, limits, and deductibles to fit the business and allow it to keep operating successfully”

One of Joe’s favorite projects was working with Sphero, a Star Wars vendor, around the time the newest installment of the series was being released. With the corresponding release of a BB-8 drone toy, the company experienced large returns and the growth. This extreme growth – revenue increased exponentially within a matter of months – triggered a premium audit of their legacy policy. Joe and his team saw this coming, helped Sphero anticipate and prepare for the audit, and softened what would otherwise have been a massive premium adjustment.

Joe advised, if he were engaging an agent, that the first thing he would look for is someone who is dependable and who does what they say they will do. “Back up what you promise,” he says of the ideal agent. “Everyone can say they have the ‘magic elixir,’ but you have to be able to follow through.” The best agents aim for long-term relationships by following through on what they offer.

You may think, like I once did, that working with a big agency like Lockton costs more. I was surprised to learn that insurance brokers are paid the same commission for the policies they sell. The commission is regulated by a state agency. Joe shared that working with a smaller agency may cost you more in the long run.  If the agency fails to provide services that compare with those Lockton offers, your premium will probably be higher and you’ll probably experience more claims. “So you’re going to get better service from us for the same premium,” says Joe. If this sounds like something you’d like to learn more about, or if you have questions for Joe, please reach out to me. I’d be honored to connect you.