I met a man last week who has a seriously complicated insurance situation. He owns five different businesses that are quite different kinds of businesses, involve travel to multiple continents, share employees and equipment daily, and some employees have their own businesses but may use his equipment.
About 10 years ago, his teenage son had an accident and his captive insurer of 25 years nonrenewed him lickety-split. We all know teenage drivers are accidents waiting to happen. But insurance companies owe insureds more loyalty. If the carrier only wants free money, they should quit pretending to be an insurance company because they really are no longer in the risk transfer business. They’re in the free money business leaving the risk with the insureds.
This is especially true today with the blanket underwriting happening on property insurance. Property should be written on an individual basis and many homes are far safer than the blanket 100-mile radius factors consider. Homes are higher, stronger, have wildfire mitigation and barriers, and yet insurance companies underwrite those homes as if all homes were below sea level, all homes were built of sticks without any strengthening, and all homes were engulfed in tinder dry brush and trees. I don’t see them making any real effort to underwrite. To save money, they really should just lay off their underwriters and quit pretending.
This same man had another auto claim for which he had no insurance. Evidently the agent had not explained to him how his commercial auto policy did not cover borrowed or rented vehicles. He thought he had coverage. He did not know he was self-insuring that property.
As is my tendency, I began asking him all kinds of questions relative to how he had this and that insured and explaining how he may not have the coverage he thinks he has given how complicated his business enterprise is. I think his agent insured each business individually but did not consider the fact that assets and employees were being used interchangeably.
I’m not sure he had umbrellas that covered everything, as an umbrella over the entire enterprise. I’m also unsure his applications disclosed all the details of his enterprise. I don’t think this was because he was deceptive, but because his agent may not have adequately explained all the details that needed to be disclosed. The man uses all this equipment all the time and does not intuitively know why an insurance company would need all these details. Agents need to help insureds complete applications and explain these kinds of details.
A great example of helping insureds complete applications is in the cyber world. Cyber applications are notoriously complicated. Many applications have questions that are ENTIRELY inadequate, if not inappropriate. The Yes/No questions are especially horrible because the correct answer is virtually NEVER “Yes” or “No”. The correct answer is almost always, “sometimes.” Maybe Microsoft and Apple can complete cyber applications on their own, but 99% of all other companies cannot competently complete cyber applications on their own. Maybe if the applications were written correctly, they could, but the applications are not written well further exacerbating the insureds’ inability to complete them correctly.
This man has one IT system for all his companies. Which of his companies has a cyber policy? What if that system is infiltrated through Company D but the cyber policy is written for Company E? Did his agent address this possibility? What if he is accused for some kind of media liability for what is posted on Company D’s website, but the media liability policy is written for Company E?
Another question I posed involved his workers’ compensation. Did his agent verify he had workers’ compensation regardless of which of his companies he was working for when he incurred his injury? How about when he’s on a business trip to Africa for company A, but his workers’ compensation policy is for company C?
How should his D&O be written? It turns out his agent had never offered D&O.
His agent had also never discussed who was allowed to drive his commercial vehicles. He did not know if he had any excluded driver exclusions. I hope he doesn’t because he allows a lot of people to drive his trucks, even people who are not employees, much less employees of his different companies driving his other companies' vehicles.
The missing piece is that his agent evidently had never sat down with this man for many hours, because many hours are required to identify the necessary coverages and integrate policies to minimize coverage gaps. Time is also required to educate the insured relative to what they can and cannot do if they want their coverage to be effective. From the outside of his physical business, the situation does not seem as though it could be complicated, but this man’s insurance situation is extremely complicated.
The point of insurance, whether it’s an insurance company or an agent, is to provide or at least offer the coverages the client needs. I do not mean the offer should be cursory either. The coverage diagnosis and offer needs to be thorough. Otherwise, you don’t really serve any purpose in this world except the selfish one of making sales to make money.
Insurance really should have a higher purpose and my clients who serve that purpose tend to make more money while living less stressful lives. The reason is they make bigger sales because their clients buy more coverage. Simultaneously, their lives are less stressful because their clients are happier, less likely to sue their agent, and they are sued less often. It is the best of all worlds.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.
None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.
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