Mechelsen, Inc. Risk Management Forum

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