How a coverage analysis can determine the right amount of insurance for your needs Featured

8:01pm EDT September 30, 2011
How a coverage analysis can determine the right amount of insurance for your needs

When was the last time you reviewed your business’s insurance coverage?

If you’re not doing an assessment at least annually, you may not be covered as things continue to change at your company. And if you’re just continuing to pay your insurance bill without evaluating what you are paying for, you may find yourself underinsured should a disaster strike your business, says Jeffery Reisner, CPCU, CWCC, who leads the Real Estate Insurance Practice at Neace Lukens.

“Things can change quickly,” says Reisner. “For example, FEMA has been changing the flood plains over the last two years, and a property that wasn’t formerly in a high hazard flood zone may now be. Building codes may have changed forcing you to pay for mandated property upgrades to damaged property. Due to economic conditions, you now have a high vacancy issue. These all have unique challenges and exposures to address. Especially if you have a large mixed use real estate portfolio, you really need to keep in touch with your insurance broker and risk manager to ensure that your coverage is up to date and you can address these exposures in case of a disaster.”

Smart Business spoke with Reisner about doing a coverage analysis of your business and how doing so can help you determine the right amount of insurance for your company.

How do you determine the right coverage and amount of insurance for your business?

Start with a coverage analysis, regardless of whether you are a small business or a large multi-state or multi-location insured. Many times, a small business has a higher risk as it generally will not have an in-house risk manager to review its insurance coverage. This leaves the owner ultimately reliant on his or her broker. A small business also may not have the financial resources to recover from an uncovered loss or disaster.

In an assessment, your insurance broker will identify any changes in exposures in your business -— past, present and future — and then review your current insurance program and go over the policy in detail. He or she will identify current coverages and whether there are any weaknesses or uncovered areas in the policy. Insurance is broken down into multiple segments, including property, general liability, auto, management liability, etc., and each of those has its own exposure and challenges.

Your broker will go over each of those areas and then make recommendations for coverage, possibly with a side by side analysis.

Is doing an assessment a time-consuming process?

It can be, particularly if your business has a real estate footprint across the country. If your locations are primarily in what is considered low hazard areas geographically, it’s a little easier. But if you have property in catastrophe-prone areas, such as the flood-prone banks of the Mississippi, or high wind areas in the Gulf of Mexico or on a major earthquake fault line, it can be a more complex process. With the unusual weather-related events we have had lately it has been difficult to predict.

It also depends of the mix of properties in your portfolio. If you have a blend of multi-family, office space, light industrial and commercial, each one of those presents a different challenge both from a property and general liability standpoint.

How does the assessment or due diligence process work?

As mentioned before, your broker will want to look at your current policy, location schedule and statement of values so that he or she can identify the types of property in your portfolio, profile of the properties and where they are located.

The broker will then start their due diligence by conducting a survey of each property with the on-site property managers or whatever other resource they have access to. This will involve identifying items as simple as construction, square footage, age, and fire and life safety features. With the more challenging or larger properties, utilizing a broker’s loss control department or risk management personnel to visit the site is always an efficient way to evaluate a property’s exposures. An exposure analysis checklist can assist even a smaller business in its coverage review.

Your insurance needs should be assessed yearly, at minimum, but if you have a large portfolio with an extensive footprint across the U.S., you may want to do a quarterly or midterm review. This is something that every business needs to do. Often businesses simply continue to renew and pay their insurance bills without considering what they are paying for and whether their needs have changed.

How can you identify the right broker for your needs?

Choosing a broker is a huge issue, and you should interview several brokers to find the right match for your needs. Too many business owners simply bid out what they believe their insurance needs to be to several brokers in hopes of achieving some cost savings.

While important, price shouldn’t even be part of the initial conversation with the broker. Instead, the broker should ask questions about your business in order to start assessing your needs.

You should be asking questions, as well, to determine what the broker is going to be able to bring to the table, besides a quote.

Any broker can obtain a quote for you. But when a large loss occurs, is it just going to be you and your assigned adjuster mediating a loss? Or is your broker’s team going to be your ongoing advocate to help you begin your road to recovery?

Ask whether your broker is specialized in the market segment in which you do business. You want a broker that is an expert in your field, as you are. Ask about the broker’s relationships with the insurance carriers he or she represents. Also ask for referrals and call several of the broker’s current clients. Lastly, what other services and resources does he or she bring to the table? Price obviously is an important consideration, but after a major loss, the support and services provided by your broker can make a significant difference in how quickly your business can recover.

Jeffery P. Reisner, CPCU, CWCC, leads the Real Estate Insurance Practice at Neace Lukens. Reach him at (216) 446-3336.