It’s tempting to glance over your business
insurance policy and call it reviewed, but
taking the time to actually understand the contract ensures you experience the optimal
risk protection at the best value. Locating and
filling any gaps in your coverage can save you
from unpleasant surprises and help contain
your premium costs.
“Knowing what is and is not covered allows
you to evaluate financial risk exposure
before an event occurs,” says Joe Kauffman,
claims analyst at Westfield Insurance. “This
also gives you time to meet established goals
and protect and preserve financial assets at
risk or exposed.”
Smart Business learned from Kauffman
about the benefit of carefully reviewing your
insurance policy and how to use this knowledge to minimize your business risk.
Why is it crucial to understand your policy?
One of the most important things policy-holders can do to protect their assets is
review and understand the terms and conditions of any new policy or renewal policy. If
they have any questions, they should contact
an appropriate professional for an explanation of benefits. This prevents misunderstanding of what is covered, where it is covered and how it is covered. It also helps to
determine responsibilities after a loss.
To illustrate the above, an insurance contract specifically identifies the parties to the
contract, referring to the named insured on
the declaration and those who may qualify as
an insured by definition or under ‘who is an
insured.’ Commercial entities with multiple
parts, such as corporations with subsidiaries,
need to clearly understand which entities are
insured under the policy. Unless a business is
specifically named as an insured or qualifies
as an insured under the condition ‘who is an
insured’ or is listed or qualifies as an additional insured on the policy, coverage for this
entity maybe denied.
How can a policy review reveal areas where
you need to purchase additional coverage?
Each insurance contract sets forth the
intentions of the insured and the insurer.
Both parties should have a clear understanding of the coverage being agreed upon and what is required and expected of both sides.
Your knowledge of these terms and conditions and how and when they apply allows
you to purchase the insurance that best fits
your situation. For instance, you may want to
buy additional coverage if your policy has
certain coverage limitations for specific types
of losses, such as theft, or only covers the
actual cash value instead of the full replacement cost of an item.
How should you evaluate deductibles, policy
limits, exclusions and limitations?
These choices come down to determining
your willingness and ability to accept financial risk exposure based on a risk and cost
benefit analysis. You can reduce your premium by limiting or excluding coverage. But if
you’re not in a financial position to handle
the consequences of a loss, you should pay
close attention to the need for appropriate
insurance with the correct coverage limits.
Also, when you evaluate your liability exposure and coverage limits, consideration
should be given to the need for excess or
umbrella coverage.
How can businesses use their policy review
to facilitate risk management?
Once you understand your areas of risk,
you can establish goals on how to reduce
your exposure without necessarily purchasing additional coverage. This could include
conducting training for staff, redesigning
accident-prone work areas or streamlining
processes. You can also evaluate your relationships with suppliers and contractors and
make sure you correctly transfer risk to
them. With contractors, this includes having
the appropriate hold-harmless and indemnification agreements and certificates of insurance on file. You can also require that your
subcontractors add you as an additional
insured on their policy.
How else can business owners prevent surprises?
A common misunderstanding involves the
co-insurance clauses on most commercial
property policies. This clause requires an
insured to maintain coverage up to a percentage of the value of the insured item or the
insured becomes responsible for part of the
loss. For instance, if an insured has a co-insurance condition requiring a specific percentage on a specific item or building and
fails to maintain the agreed coverage limit on
the item or property, the insured will share in
the loss. This can reduce any recovery the
insured would receive in the event of a loss.
Also, some types of risks, such as moral or
altar hazardous risks, are uninsurable from
the standpoint of the insurer.
Guidance from a qualified expert, such as
an agent, broker or risk manager, is a valuable asset when evaluating exposure to risk.
Make sure to review exposure prior to and
after receiving a policy, confirm that you purchased the coverage desired, and ask questions if you do not understand a term, condition, limitation or exclusion. Also review
your policy annually or when there is any
change in your operations with an expert that
understands your business exposure.
Joe Kauffman
Claims analyst
Westfield Insurance
JOE KAUFFMAN is a claims analyst at Westfield Insurance. Reach him at [email protected] or (330) 887-0899. Westfield
Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product we offer is peace of mind and our promise of protection is supported by a commitment to service excellence.
For more information, visit www.westfieldinsurance.com.
