Westfield Insurance on knowing your policy Featured

8:00pm EDT April 25, 2008

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 joekauffman@westfieldgrp.com 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.