by Brad Shrum, Commercial Underwriter and CPCU
After reading the June 2017 article in Inc. Magazine – One Insurance Mistake in Business, I thought about one mistake that we as underwriters and producing agents see daily in the insurance industry: Insureds settling and even pursuing the cheapest approach to their insurance solution. Insurance is a key risk management tool from which an insured transfers their asset and liability exposures to a carrier that assumes this responsibility through an insurance mechanism. However, in many cases, rather than transferring the appropriate risk exposure, an insured may unknowingly settle for another key element of risk management often overlooked. It is called self insurance. This occurs when an insured has an insurance policy that gives some basic coverage for a low cost, but in no way covers their total exposures, leaving them with perhaps a catastrophic potential.
Common to this way of purchasing insurance are both non-profit entities and small commercial businesses. Both may struggle with revenue flow and often insurance is looked at and purchased on simply “we have to have it” only, and as agents we must educate each insured on their insurance needs relative to their individual risk exposures. Below is an example of a church that is typical of needing some guidance.
Very Good Church has been long established but recently is experiencing a loss of membership, due to competition, attrition, and members passing on. The church has a building valued at Replacement Cost (RC) limits of $1,000,000 that is 40 years old. For costs reasons, they decide to go with an Actual Cash Value (ACV) limit of $600,000 at 90% coinsurance, carrying $540,000. This would save them approximately $500 in building insurance premium a year. However, when it hails and destroys the roof, insurance will only cover $15,200 after the $1,000 deductible, leaving them with a $14,800 repair expense to raise from donations. Best of luck to the finance committee explaining the earlier savings to a congregation now experiencing a real budget issue. You can see the devastating situation that the congregation would be facing.
Yet this is a frequent insurance buyer’s thought process, but one that can be easily avoided and explained to a client.
Another example is that of an artisan contractor who decides to carry only the minimum general liability limits. With most carriers this is $300,000/600,000 for a minimum premium type policy. Several concerns should be raised though. The first is that a certificate holder request most certainly would require much higher limits for this contractor to work for them. And secondly, the cost of moving to a $1million occurrence limit is somewhere around $80 which would offer much more up-front protection. Now the insurance policy cost has moved from $750 to $830 and there is no need for endorsing to meet a certificate holder’s request.
These are just a couple of examples we see in the industry. As the gatekeepers and caretakers of our insureds let’s help them with an insurance product that is comprehensive, affordable, and protects all of their insurable exposures.
Are you responsible for purchasing insurance for your business or church? Contact us at MAX Insurance Agency, Inc. for your commercial, non-profit, and church insurance needs in Overland Park and the Kansas City metro.
Brad has worked at MAX for the past 14 years and has over 30 years of experience in the insurance industry doing underwriting, field management work, and sales. Outside of the office, Brad is an ordained Southern Baptist Deacon and a Sunday School teacher of 30 years. In addition, Brad is a long-time Vacation Bible School teacher and has an ongoing 19 year Nursing Home Ministry. Since he was a young teenager, Brad has been an avid goose hunter, traveling across North America while pursuing this noble bird and enjoying the outdoor world.