Mechelsen, Inc. Risk Management Forum

Trends - Uninsured coverage not only for autos

Trends - Uninsured coverage no longer just for autos

Most consumers are aware of the risk that they may be injured in a car accident caused by someone who is uninsured.  This is why most consumers are wise and secure limits of insurance for Uninsured/Underinsured Motorist protection on their auto policy.  And the very wise, (see my blog entry from July 11, 2007) add uninsured motorist coverage to their excess liability (umbrella) policies. 

If you're smart enough to buy high limits of insurance to help fund the possibility that you could hurt someone else (the reason you buy liability insurance), you are surely smart enough to want to buy high limits of insurance to help fund the financial losses you'd incur if you get hurt by someone else (the reason you buy uninsured insurance).  Well now we're very proud to say that we had a hand in initiating and creating uninsured protection insurance for losses in addition to losses that might occur as a result of an auto accident. 

Want some examples?  What if you get serious hurt by someone while skiing and that person doesn't carry any liability insurance because they never thought it was important to buy a renter's insurance policy?  Who will pay for your losses?  What if your child is bitten by someone's roaming dog and is permanently disfigured?  What if you're accidentally stabbed by an errant steak knife at a restaurant?  Sound too "out there"?  These are all actual events where this new uninsured protection insurance would have provided coverage!

We expect this kind of coverage to grow in popularity as advisors and families see the benefit in protecting their financial position against things that happen to them just as much as they see benefit in protecting their financial position against things they accidentally do to someone else.  But we need to make a special note of thanks to Fireman's Fund who is the very first insurance company to take our idea and turn it in to a reality (being introduced in all 50 states).  I try to stay insurance-company neutral in this blog but their pursuit of this idea for the benefit of their clients is really outstanding, though not at all surprising given our experience with everything that they do. 

Mechelsen, Inc.        Darren McGraw, MBA, CRM, CIC         mechelseninc.com

Trends - No coverage for diminution of auto value

Trends - No Coverage for Diminution of Auto Value

Courts across the US have heard many challenges over the past few years to insurance company declanations of coverage for claims by policy holders that auto insurance policies should compensate them for the reduced resale value of their cars after a loss.  In most all cases the courts have concluded that beyond restoring an insured vehicle to pre-accident function, performance, and appearance, there is no contractual obligation to include compensation for any stigma of lesser value. 

Without citing the specific cases here, most all courts followed the same analyses of the contract and applied the plain language of the policy to determine that the insurance company defendant did not owe beyond the repair/replace language contained in the contract. 

Consumers will likely continue to expect their insurance to compensate them for either the real or perceived diminished value of their car, but there appears to be ample judicial support for insurance companies denying payments for those kind of claims. 

Mechelsen, Inc.                Darren McGraw, MBA, CRM, CIC            mechelseninc.com

Trends - Optional Excess Uninsured Motorist

Trends - Optional Excess Uninsured Motorist

Most financial planning clients get plenty of advice encouraging them to secure Excess Liability (umbrella) insurance.  The risk to net worth (both current and future) stemming from an actual or alleged claim of negligence is fairly easy for most planners and consumers to understand.  Insurance is a risk financing product, not a risk transferring product and most people understand that liability insurance only pays for the first $X of a liability claim.

Unfortunately, we see too many planners and consumers not feeling as strongly about securing Uninsured Motorist coverage to protect themselves against serious injuries caused by someone without insurance.  The statistics prove that there's a nearly-equal chance of an accident being caused by someone without insurance as one being caused by someone with insurance. 

If your client feels they have net worth worthy of protection against liquidation forced on them by a liability suit, it seems that they'd feel the same need for protecting net worth against liquidation forced by an injury and the resulting economic losses suffered at the hands of someone without insurance.  Fortunately, the industry seems to be making Excess Uninsured Motorist more and more available as an optional coverage added to an Excess Liability policy. 

Our observations suggest that for $1,000,000 worth of Excess Uninsured Motorist a typical family could expect to pay between $100 and $200 per year for this additional coverage.  This seems extremely affordable and a valuable wealth protection tool.  Remember, let the insurance company worry about the probability of any particular occurrence.  The consumer just needs to worry about the impact of severe losses and different ways of managing that risk.

Mechelsen, Inc.            Darren McGraw, MBA, CRM, CIC            mechelseninc.com

Red Flag: Trusts and Limited Liability Corps

Red Flag:  Trusts and Limited Liability Corporations

You may be involved in helping clients transfer assets into a Trust or LLC.  If so, be sure that the insurance policies designed to cover the value of the asset and the liability exposure derived from the use of the asset is changed to account for the transfer of ownership.  If the Trust is not properly included on the policy there is a chance that the Trust a) may not be paid properly for the value of the property if destroyed/damaged, and b) may not earn defense and indemnity protection if it is named in a lawsuit. 

Hypothetical example:  Assume that your clients transfer their vacation home into their Trust.  Now let's suppose that while visiting your client's home someone suffers a serious injury due to some alleged negligence in how your client's kept their home free of danger.  When the injured person's lawyer looks for all possible defendants, don't you think it'll be easy for them to find out that the home is owned by the Trust?  Will your client's insurance policy provide both defense and indemnity coverage to the Trust in the management of the lawsuit?  Are you sure?

Before something like this happens, talk to your insurance specialist and involve them in properly altering the insurance portfolio to reflect the position of the Trust or LLC.  99% of the time the premium change should be $0!

Mechelsen, Inc.               Darren McGraw, MBA, CIC            mechelseninc.com

Claim Horror Story: Recent verdicts/settlements

Claim Horror Stories:  Recent jury verdicts and settlements

King County - Improper Lane Change:  Defendant changed lanes into plaintiff on I-90 causing a three-car accident.  Injured Plaintiff suffered a strained neck and underwent chiropractic care.  Plaintiff was awarded $487,550 on 11/9/06. Defendant had only a $25,000 limit of liability on her auto policy.

King County - Intersection Accident:  Defendant attempted to turn left onto Sahalee Way in Sammamish and pulled in front of Plaintiff's vehicle.  Plaintiff suffered a fracture of her T5-T6 (back), a closed head injury, and secondary Staph infection while hospitalized.  Plaintiff can no longer work as a transplant nurse.  Settlement on 12/4/06 for $5,000,000.

King County - Failure to Yield:  Defendant made a left turn in front of Plaintiff who was travelling in the opposite direction on Guide Meridian Road.  Plaintiff suffered a broken tibia/fibula, broken rib, broken wrist, and fractured C-1, and closed head injury.  Defendant had $1,000,000 Liability limit and Plaintiff had $50,000 Uninsured Motorist limit.  Medical expenses totaled $286,394 and lost wages totaled $116,531.  Demand of Plaintiff into trial of $4,169,631.

Pierce County - Intersection Collision:  Defendant tried to cross intersection and struck Plaintiff on his motorcycle.  Plaintiff fractured his foot, his tibia, his fibula and suffered several cuts and bruises.  Settlement on 10/24/06 for $1,000,000.  Insurance contribution amounts unknown.

Pierce County - Snowboard Accident:  Defendant ran into Plaintiff while snowboarding at Crystal Mountain.  Plaintiff suffered a broken leg and a knee injury requiring surgery.  Settlement on 11/21/06 for $137,500.

Yakima County - Head-on Collision:  Defendant crossed centerline on SR 12 and struck Plaintiff.  Plaintiff broke her ribia, fibula, kneecap, ankle, wrist, ribs, and three teeth.  Defendant had only a $25,000 Liability limit and Plaintiff had only a $25,000 Uninsured Motorist limit.  Medical bills totaled $325,293.  Negotiated settlement of $785,000 will be pursued against assets of Defendant.

Red Flag: Not-For-Profit Volunteering/Boards

Red Flag:  Clients who volunteer their time for community service organizations

Generosity in the service of not-for-profit organizations is a wonderful thing.  But doing so can present a serious liability issue and expose your client to many unintended risks of uncovered loss.

Many standard home insurance policies provide liability defense and indemnity coverage for non-remunerative services provided to community service organizations.  But beware! Many of the coverages provided by standard home insurance policies are limited only to bodily injury and property damage exposures!  Some policies may provide endorsed coverage for libel and slander (personal injury), but there are still many more liability exposures that can't been defined as bodily injury, property damage, or personal injury.

Many organziations are actively involved in economic development (Chambers of Commerce, perhaps), management and employee oversight (School Boards, for example) and various other elements where allegations of negligence can lead to financial-loss claims worth millions of dollars.  Most standard home and umbrella policies will not cover losses that don't involve allegations of negligence resulting in bodily injury, property damage, or personal injury.

Many organizations carry Director & Officer policies, but how many of those policies extend coverage for the defense and indemnity of individual members, what exposures are covered, and what are the limits of coverage on those policies?  If you don't know who will be defending your client if they are personally sued in their service of a not-for-profit organization, then this is an immediate red flag 

For any client that volunteers their time, make sure that this is known to their insurance expert and make sure that the exposure-analysis includes a review of the service organization's D&O policy.  Perhaps the organization's D&O policy will cover your client's exposure.  But also know that a certain high-quality personal insurance company now provides expanded "D&O" coverage as an endorsement to their personal umbrella policy!  These expanded D&O options on a personal excess policy are extremely valuable for your clients who may otherwise have serious gaps in financial protection in their service with not-for-profit organizations. 

Mechelsen, Inc.           Darren McGraw, MBA, CIC            mechelseninc.com

Commentary: Not Meant As Fear Mongering

Not Meant As Fear Mongering

We're sometimes accused of always carrying around a wet blanket just so we can throw it on everyone's party (and keeping a spare one in our car "just in case").  Perhaps an occupational hazard of being in the risk business is that you start to think of the "what-ifs" and the "maybes" for almost everything.  Just looking at a few stories on this blog may convince some advisors to never check back because it freaks them out.

We tend to look at it from a very positive angle, however.  Perhaps because insurance is never needed during the most fun times in life, most people use words like "have to", "necessity", "expensive", "irritating", "scary" to describe the insurance analysis, acquisition, and claim experiences.  But when you think about what the insurance contract does for someone in exchange for a small expense in relation to the total risk exposure, having the right insurance portfolio in place is actually LIBERATING!

Having insurance shouldn't make anyone less careful or concerned, but in the same way that you give comfort to clients by addressed their investment risk tolerance, providing them with the right insurance portfolio that addresses their risk exposure frees up concern and other resources which allows them to live a good life!  Ignorance is not bliss.  Knowing what to do and why to do it is bliss.

The accounts that we post here in this blog are not meant to be alarming, but are examples of how important attention and diligence are when having your clients' insurance portfolios reviewed.  Having the ability to identify what is unaccounted for in a client's insurance portfolio and then having the experience to actually go get what is needed should be a minimum requirement for anyone touching your client's insurance affairs.  If your insurance advisor can't prove to you that they know the smallest details of their contracts and the way they are affected by the real world, then to us THAT is alarming!

Mechelsen, Inc.             Darren McGraw, MBA, CIC                mechelseninc.com

Red Flag: Home & Condo Associations

Red Flag:  Clients in Home or Condo Associations

It has been reported that about one is six American households belong to some form of home or condo association.  Here in the Seattle area I'm betting that ratio is higher.  What many property owners fail to understand is that most associations have bylaws that allow for association losses to be assessed to all owners, or even one owner!

Most home and condo insurance policies automatically provide some level of coverage for certain assessments levied against an insured, but it's usually limited to just $1,000.  In addition, the intrepretation of what is covered under the loss assessment provision of any particular policy can be extremely complex (specific claim horror stories can be provided upon request). 

Fortunately, most insurance companies provide optional increases to the limits provided for loss assessments, but your client needs to ask for them.  If you have clients that live in a development or unit with an association be sure that they take steps to understand the scope of their exposure to loss assessments and the options for getting loss assessments covered by their home/condo insurance policy.

Mechelsen, Inc.                   Darren McGraw, MBA, CIC                 mechelseninc.com

Red Flag: Vacant Land

Red Flag:  Do we all agree on the definition of "vacant"?

Most all home insurance policies automatically include coverage for additional plots of vacant land owned by a client.  But what constitutes "vacant land"?

Cases heard around the country have at various times ruled that things like water pumps, abandoned foundations, roads, fences, mailboxes, mine shafts, a length of chain rope, deer stands, rockways, and flag poles have all been sufficient "improvements" as to void the automatic extention of coverage to plots of vacant land.  All of these court cases stemmed from very serious injuries where coverage was denied because of these improvements!

The lesson is simple.  If there's even a hint of a question as to whether the land is "vacant", be sure the plot is added as an "additional location" to the home insurance (and don't forget the Umbrella) policy.  The cost should only be about $25! 

Mechelsen, Inc.             Darren McGraw, MBA, CIC             mechelseninc.com

Insuring the Nanny Exposure

Red Flag:  Insuring the Nanny Exposure

If your clients have a nanny (regardless of whether or not the nanny is a "live-in" or "live-out"), your clients are automatically exposed to greater liability and a more complicated insurance position.  One of the reasons that the insurance position becomes more complicated after employing a nanny is because there's not a "right" way to do things.

The most obvious added exposure of having a nanny is the effect on the auto policy coverages should the nanny either drive or ride as a passenger in an insured auto.  Depending on the factual scenario, coverage under your client's policy for losses can run the gamut from "covered" to "denied".  Pretty specific, huh?

Adding to the complexity of the added auto exposure is the varied underwriting positions taken by different insurance companies on what can be done to address the exposure before the loss to try and mitigate the "denied" possibilities.  No two companies seem to agree on exactly what should be done, but most all have an opinion and a course of action to follow (i.e. - it MUST be addressed specifically for each client).

What's often not as understood or addressed by most people is the added exposure to your clients' home insurance, personal liability, and/or excess liability policies.  Again, there are too many issues to discuss here, but when completing your client's insurance review be sure that the nanny issue is addressed on the home insurance policy, too! 

Finally, having a nanny is one of the most common example of one of our core philosophies:  Risk management is NOT the same thing as insurance management.  Both are important, but good risk management in employing a nanny is absolutely critical regardless of the insurance policy management issues.  Incorporate this more holistic philosophy when addressing your clients' nanny issues.

Mechelsen, Inc.               Darren McGraw, MBA, CIC             mechelseninc.com

Trends and Impact on Financial Advisors

Current Insurance Trends That Impact Financial Advisors

Over the last ten years we've seen the industry move from strong M&A motivation, to severe "hard market" underwriting, to deeply-discounted price competition.  While different companies react and respond to trends at different times, the pendulum eventually swings the same for all.

What I'm most pleased with is what seems to be an emerging trend of insurance carriers using their "product" as differentiation.  Instead of targeting market share or profit just by lowering rates or restricting underwriting requirements, many of the best insurance companies are investing more in "cafeteria"-style contracts where more customization of coverages is available. 

The benefits of this are obvious.  What your client doesn't need won't be forced on them.  And what your client does need may now finally be available where it didn't exist before.  The impact on you as their financial advisor is quite significant.  On the one hand, it's more likely that you can play a part in getting your client the risk management protection that is needed.  That's good.  On the other hand, now that more options are available you'll need to keep a closer eye on the marketplace to make sure you don't miss an important opportunity.  That's not so good.

Using an insurance expert as your firm's go-to specialist becomes even more important and even more advantageous as long as the expert you use is independent, has access to a large breadth of the market, and knows what they are doing.

Mechelsen, Inc.                  Darren McGraw, MBA, CIC               mechelseninc.com   

Claim Horror Story: Golf carts

Claim Horror Story:  Golf carts not where they're supposed to be.

More common at the seasonal residences of our clients in California and Arizona, living in a community where most residents commute through the neighborhood in their golf carts sounds like a lot of fun.  Getting to the clubhouse, a neighbor's house for bridge, or taking the dog for a "walk", taking a golf cart while inside a gated residence community makes a lot more sense than driving a car.  But beware, because losses that occur while in/on the golf cart may not be covered by an underlying insurance policy!

Case in point:  Two octogenarians living in a golf community traveled down the street to a friend's house where a summer night's party was held.  After some cocktails another friend asked if they would give him a ride home on the back of their golf cart.  Trying to stand on the back of the golf cart, the friend lost his grip and balance as the golf cart went over a speed bump and he fell, fracturing his hip and sustaining a severe head injury.

The insurance company who provided the home insurance for the operator of the golf cart had recently made a change to their policy's language concerning the exclusion related to operating a golf cart (a change made, not insignificantly, to better match similar changes in competitors' policies).  Because of this change, what may have been considered "covered" just a few months before the accident was denied because of the policy language that was changed at renewal.  The sad result of this claim was that none of the costs of the loss was covered by the insurance policy of the golf-cart operator (who was found partially at-fault for the accident).

There are two points to make.  The first, remember that policy language is not necessarily static from term to term.  There are constantly-changing coverages, exclusions, and conditions.  In fact, when the above-referenced policy change was made there were other changes made to the home insurance policy and the document written to outline the scope and rationale of the changes totalled 700 pages (for a 27-page policy)!  Do not think that what was covered yesterday is necessarily covered today and commit to having regular insurance reviews completed for your client.  The second, if your client owns a golf cart, discuss with your client's insurance agent any concerns regarding insurance policy coverage. 

Mechelsen, Inc.                  Darren McGraw, MBA, CIC                  mechelseninc.com

Red Flag: Kids At Home With Their Own Auto Insurance

Red Flag:  Kids At Home With Their Own Auto Insurance

Many clients come to us trying to justify their decision to put a car and separate insurance policy in the name of their living-at-home child saying, "this way we won't be responsible if a bad car accident happens."  Actually...

If you have any client that has a child living at home with their own insurance policy, make fixing this potentially monumental problem a top priority!  I won't bore you with a full dissertation on the reasons why, but it's sufficient to say here that many, many gaps in insurance coverage can exist under a situation like this.  In addition, many more opportunities exist to "lose control" over keeping limits of liability high enough, paying the premium, controlling the underwriting, etc. when a policy is written in the name of a child. 

If you have any clients with multiple auto insurance policies in one household that should be the tip-off to talk to an insurance expert asap to make sure that if there are existing gaps in coverage, they are filled right away.  And if you do want to bored with the full dissertation on all the reasons there are problems with this scenario, I'll be happy to comply with your request. 

Mechelsen, Inc.               Darren McGraw, MBA, CIC                mechelseninc.com

Insurance Premiums: What Other Structure?

Insurance Premiums:  Reduce Coverage for Other Structures If There Aren't Any.

Most standard home insurance policies provide a separate limit of coverage for losses to structures on the residence property that are not premanently attached to the Dwelling.  Normally granted as 10% of the Dwelling limit, this limit can pay for covered losses to fences, sheds, gazebos, detached garages, etc. 

But if your client doesn't have any detached structures, see if the amount of coverage for Other Structures on their home insurance policy can be reduced in exchange for a premium credit.  Be careful not to leave your client underinsured, of course, but if your client's home is insured for $750,000 and they don't have any detached structure on the property, reducing the standard $75,000 limit for Other Structures to something that is more appropriate makes a lot of sense because it saves money on wasted premium that can be better allocated toward increasing liability limits, raising the Dwelling limit, or something more relevant.

Mechelsen, Inc.                 Darren McGraw, MBA, CIC                mechelseninc.com

Claim Horror Story: Car Clubs & Race Tracks

Claim Horror Story:  "I wasn't racing, I was just going really, really fast"

Most auto insurance policies specifically exclude any coverage for participating in an organized racing event.  But what is often misunderstood is that many policies expand on this to also exclude the more common occurrence of sports-car-clubs meeting at a racetrack to enjoy taking their cars to the track as a hobby.

Case in point:  An owner of a Porsche 911 met the rest of his Porsche Club at a local speedway.  The members were allowed to take their street-legal Porsches onto the track and "open it up" on the course.  No prizes, no organization, no timing, etc, just a group of car enthusiasts free to go as fast as they could.

Unfortunately, the Porsche 911 got too wide on a turn, clipped another car, and flipped it several times.  The driver of the other car was ejected from his vehicle and was paralyzed from the waist down.  The at-fault driver's claim for liability coverage and defense was denied and the entire settlement with the other driver was paid out of the at-fault driver's liquidated investment savings.

No two policies are the same and the specific language pertaining to this (and all) exclusions is a critical detail.  Where some may find the wording of one company's exclusion to be vague, other insurance policies are extremely specific.  In this case, the at-fault driver's policy was extremely specific as to exclude anything that had anything to do with driving, riding, or being at a racetrack for any reason.

The lesson:  Know what your client enjoys doing as a hobby and make sure the insurance agent is made aware of it so there can either be a discussion concerning the known exclusions, or to try and find acceptable coverage (if available).

Mechelsen, Inc.                  Darren McGraw, MBA, CIC                  mechelseninc.com

Red Flag: Remodelling

Red Flag:  Report $5K to get 25%

Many home insurance policies grant a "cushion" of insurance over-and-above the Dwelling limit.  This extra amount is usually defined as a percentage of the Dwelling limit, like 25%.  So if your client has a Dwelling limit on their home insurance policy of $100, the extra cushion might actually provide up to $125 after a loss even though the stated limit is $100.

It's really hard to pinpoint what the post-loss reconstruction cost of a house might be without actually having a loss, so the added cushion is a blessed "fudge factor" in the event that construction costs creep over the limit on the policy.  These common endorsements are called different things by different insurance companies, but most do not charge any premium for them if the client and their home qualify.

But like with most insurance-policy coverages there are conditions and exclusions.  One of the least-known conditions of these extended dwelling cost "cushions" is a requirement that the client notify their insurance company before they begin any project which adds $5,000 or more to the projected reconstruction cost of the home.  If the project is not reported, the entire "cushion" may be voided after a loss and then your client better hope that they picked the right Dwelling limit on their home or they will be underinsured!

Each insurance company has different coverages and conditions, but keep "Report $5K to Get 25%" in mind whenever your client talks to you about a remodeling project and involve their insurance agent right away.

Mechelsen, Inc.               Darren McGraw, MBA, CIC               mechelseninc.com

Claim Horror Story: Home Insurance Liability Limits

Claim Horror Story:  Home insurance liability limits aren't just for the home!

A lot of people are careful about their liability exposures at home.  They manage the risks of slip & falls, dog bites, and falling trees by being good maintenance people, good neighbors, etc.  All of that is good, but don't forget that negligence and liability exposures exist away from the home, too!

Case in point:  A Saturday golfer teed up his first shot of the day and sliced it over the trees, into the adjacent fairway, and into the cheekbone of another golfer.  The injured golfer suffered a blowout fracture of the orbital bone and eventually lost his eye.  The injured golfer just happened to be a dentist who kind of needed both of his eyes to do his job well.  The result was a settlement over $800,000.  Fortunately, the at-fault golfer carried a $500,000 limit of liability on his home insurance and a $2,000,000 personal umbrella policy so the entire settlement (including defense costs) was paid for by his insurance company.

Be sure your clients understand that the liability limit on their home insurance policy isn't just for liability exposures on their premises, and be sure that the limit selected on the home insurance policy meets the underlying limit required by the umbrella.

Mechelsen, Inc.                 Darren McGraw, MBA, CIC                mechelseninc.com

Insurance Premiums: The best $18 ever spent

Insurance Premiums:  The best $18 ever spent...personal liability coverage.

What's the difference between $100,000 and $500,000?  $18.  That's the premium difference between those two personal liability limits on most home insurance policies.  To us, the trade of a client's $18 in exchange for the $400,000 increase in net worth protection is the best deal to be found in the indsurance marketplace.

Mechelsen, Inc.               Darren McGraw, MBA, CIC               mechelseninc.com

Red Flag: Company cars

Red Flag:  Company cars & gaps in auto liability coverage.

If your client is a custodian (i.e. regular operator) of a company-owned car, there's a chance they  face the possibility of having no insurance coverage for certain auto accidents.  If a company owns the vehicle it's likely that they also have a business-auto insurance policy covering the business, employees, etc.  But what isn't always as common is that same business-auto insurance policy extending coverage to anyone in the employee's family driving the company car.

Imagine if your client's spouse drives to the grocery store some night and causes an accident.  There are many business auto insurance policies out there that will not provide insurance for a non-employee operating the car.  If your client's company has that kind of business-auto insurance policy...oops!  No coverage from the business policy!

And unfortunately, your client's personal auto policy will probably deny coverage for the regular use of any vehicle not insured under the personal policy!  So under this scenario there'd be no coverage under the business-auto insurance policy and no coverage under the personal-auto insurance policy! Any judgment or settlement to the injured parties will have to come from your client's personal assets.

Besides the obvious to-do-list item of always checking with the employer to learn about the scope of insurance provided by the business-auto insurance policy, we recommend adding a "Drive Other Car" endorsement to your client's personal auto policy.  This endorsement usually extends personal auto policy coverage to all family members who may drive the company car.  And with most insurers usually costs about $40/yr!  No brainer.

Mechelsen, Inc.             Darren McGraw, MBA, CIC             mechelseninc.com

Increase Deductibles, Save Premium

Reduce Premiums:  Increasing deductibles saves money, allocates premium better.

If your client has only $1 to spend on insurance, would you rather see her insure her fairway driver golf club against theft, or buy 10X more net worth protection from lawsuits?  Many home owners spend way too much money insuring the smallest portion of small claims, but are inadequately protected against losses that could ruin them financially.

Increasing deductibles saves money on insurance premiums which can often "fund" incremental premium expenses tied to adding more critical coverages (Dwelling limits, Scheduled Valuable Property, Liability limits, etc).  In fact, in most cases clients can improve the scope of their total insurance protection without spending any more if they are willing to reallocate their premium expense toward the "big things" and away from the "small things".  Building that rationale into the custom design of the risk/insurance portfolio produces a tangible and powerful financing of risk. 

Mechelsen, Inc.                 Darren McGraw, MBA, CIC                  mechelseninc.com

Red Flag Alert - Old Homes

Red Flag:  Clients with old homes.

Most standard home insurance policies limit the amount of recovery provided to bring a home up to current building codes after a loss.  Suppose one of your clients suffered a big loss to their old home.  If their home happened to have 2x4 studs, lead-painted sills, an unbolted foundation, steep stairwells, and R10 insulation there's a good chance that before the home can be rebuilt changes will need to be made to the design and materials because they won't be able to get a permit or pass inspection otherwise!  And since 2x6s, foundation re-working, stairwell redesigning, and better insulation all cost more than what the home had before the loss, bringing the home up to current building code standards is going to cost more to rebuild that what it would cost to build the home exactly how it was. 

This incremental cost for bringing the home up to code is often limited by most home insurance policies to just a small portion of the Dwelling limit.  There have been cases where a client's policy had enough insurance to pay for the reconstruction, but not enough to pay for the building code upgrade costs.  This meant that the client was underinsured (i.e. they had to pay out of their own pockets). 

Fortunately, the remedy for this is very inexpensive!  If you have a client with an older home, quickly look at their limit for "Ordinance & Law", which should be listed on their home insurance declarations page.  Does it say "10%"?  Call us.  Good insurance and risk management is not about spending more, it's about knowing more.

Mechelsen, Inc.                     Darren McGraw, MBA, CIC          mechelseninc.com

Claim Horror Story - Boats & Umbrellas

Real-life Claim Horror Story - A gap between boat liability limits and the umbrella coverage.

A boat owner pulling a friend on waterskis wasn't paying attention and hit another waterskier.  The injuries were serious and the total lawsuit judgment against the at-fault boat owner came to $750,000.  The at-fault boat owner had a boat insurance policy with a $300,000 liability limit and an excess liability (umbrella) policy with a $1,000,000 limit.  Enough insurance to pay for the $750,000 loss?

Nope!  The umbrella policy required that the underlying boat insurance policy carry at least $500,000 worth of liability coverage before it would continue paying the judgment.  Because this underlying requirement wasn't met, here's how the $750,000 judgment was met:

$300,000 paid by the boat insurance + $200,000 paid by the boat owner (personal investments were liquidated) + $250,000 paid by the umbrella insurance company.

The lesson:  underlying insurance requirements are not the same for all insurance companies and they do change over time.  Gaps = bad news.  Be sure that someone is watching this for your clients!

Mechelsen, Inc.               Darren McGraw, MBA, CIC            mechelseninc.com

Introduction

Welcome to the new Mechelsen, Inc. blog.  This site is intended to be a source of risk management and insurance information passed between our firm and the wealth and investment community.  We will offer answers to your insurance questions, share real-life case studies (i.e. horror stories), pass along important risk and insurance trends, and keep a Red Flag List to help you and your clients avoid common pitfalls in managing risk.  If you manage the comprehensive wealth management issues for others, this site will be a good place through which you can stay tuned to the latest risk and insurance issues that do/will affect your clients.