Coverage Gaps – Setnor Byer Insurance & Risk

National Flood Insurance Program Reform

Many people don’t realize that flooding is the most common natural disaster in the United States. In the past 5 years, all 50 states have experienced floods. According to the Federal Emergency Management Agency (FEMA), total flood claims average nearly $4 billion per year. The average flood claim is nearly $42,000.

Unfortunately, many people also don’t realize that standard homeowners’ and renters insurance policies do not cover flood damage, and that they need a separate flood insurance policy. These policies are commonly obtained through the National Flood Insurance Program (NFIP). Though created by Congress in 1968, recent legislation is reforming the NFIP.

The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), which repeals and modifies the Biggert-Waters Flood Insurance Reform Act of 2012, will slow some flood insurance rate increases and offer relief to some policyholders who experienced steep flood insurance premium increases in 2013 and early 2014. Flood insurance rates and other charges will be revised for new or existing policies beginning on April 1, 2015.

HFIAA requires gradual rate increases to properties now receiving artificially low (or subsidized) rates instead of immediate increases to full-risk rates. Implementation of the rate changes is subject to a rate-increase limitation of 18% for individual premiums and 15% for average rate classes.

HFIAA also slowed the elimination of subsidies provided for in Biggert-Waters and amended most of the provisions mandating that certain policies transition immediately to higher full-risk rates. To compensate for the decrease in revenue, HFIAA calls for the addition of a surcharge on all policies. This surcharge, which also applies to renters’ contents-only policies, is a flat fee based on occupancy type rather than a building’s flood zone or construction date.

Primary Residential (single-family / individual condominium units): $25
Non-Primary Residential (single-family / individual condominium units): $250
Multifamily Residential (condominium and other buildings): $250
Non-Residential: $250

Under HFIAA, the maximum deductible for a flood insurance policy will increase to $10,000 for single-family and two- to four-family dwellings. If used, the deductible must apply to both building and contents. For single-family homes, choosing the maximum deductible will result in up to a 40 percent discount from the base premium. It is important to remember that using the maximum deductible may not be appropriate in every financial circumstance and may not be allowed by lenders to meet mandatory purchase requirements.

The Federal Policy Fee under HFIAA will increase by $1 for most policies. The fee for policies rated using the map change table will increase to $45. The fee for Preferred Risk Policies will remain $22.

Since the NFIP is in the process of implementing HFIAA-mandated reforms, the final picture is still a bit blurry. However, since floods are not only common, but costly, the need for flood insurance is quite clear.

If you have any questions or would like to learn more about protecting your homes, please contact us.

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Insurance for Tech Companies

Since most businesses rely on technology, providing technology services has become big business. Technology companies provide goods, services and expertise that can increase efficiency, productivity and profitability. These businesses may involve:

System / network development and administration
Application and website programming and design
Hardware installation and repair
Website hosting, maintenance and optimization
Information Technology consulting, staffing and training
Project management
Consulting

Technology companies face the same risks as other businesses, so traditional insurance coverages are required, such as general liability, property, automobile and workers compensation insurance. However, additional insurance coverage may also be necessary to address the unique risks facing technology companies.

For example, many technology companies do not believe they need Errors & Omissions (Professional Liability) insurance. The reality is that technology companies, just like doctors and lawyers, can be held liable for errors and omissions committed in the performance of their professional services.

Unfortunately, a traditional E&O policy may not protect against many of the risks unique to technology companies. This is why technology-specific insurance is needed to cover technology-specific risks. To ensure adequate insurance coverage, technology companies should look for an E&O policy that, at a minimum:

Broadly defines “Computer Technology Services”
Provides coverage for failure to prevent unauthorized access to or use of any electronic system or program of a third party
Provides coverage for unauthorized, corrupting or harmful pieces of code, including, computer viruses, worms and Trojan Horses
Covers personal injury claims alleging wrongful entry, wrongful eviction, wrongful detention, false arrest, false imprisonment, libel, slander or defamation, advertising injury or violation of any right of privacy
Provides sufficient coverage limits

The right E&O policy lets technology companies focus on their business knowing that they are protected in the event of a claim. And, since clients are increasingly requiring proof of E&O insurance from their technology vendors, an E&O policy may also create new opportunities.

Given the complexity of the risks facing technology companies, evaluating insurance needs and options is not always easy. For example, in addition to E&O insurance, technology companies may also need coverage for cyber liability claims, including data security breaches, which are becoming more common.

An experienced insurance agent can guide you through the process of protecting your technology company. If you would like to learn more about insuring a technology company, contact us.

If you would like to learn more about preventing data security breaches, take our online course Information Risk Management: Strategies for Preventing and Mitigating Information Security Breaches.

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Self Storage Facilities: Protecting the Bottom Line

Most businesses rely on their facilities to manufacture products or provide services. In the self storage industry, the facilities typically are the product. If property loss or damage is not fixed quickly, the business may fail. Though most believe their self storage facilities are adequately insured against property loss or damage, many overlook Ordinance and Law coverage. This oversight can be the downfall of any self storage facility.

Ordinance and Law insurance is designed to pay the extra expense of rebuilding to comply with ordinances or laws, such as building codes, which did not exist when the building was originally constructed. Since the costs of improving a structure to bring it up to code are specifically excluded under most property policies, this coverage can be quite valuable.

An insured’s obligation to rebuild according to current and stricter codes is often triggered when an insured building experiences a covered loss, such as a fire or hurricane. Unfortunately, many insureds first learn of this additional obligation and expense after they experience a property loss. To avoid the burden of these additional rebuilding costs, self storage facilities can add Ordinance and Law coverage to their current property insurance policies. Doing so will generally cover:

Loss to the undamaged portion of the building;
Increased demolition costs; and
Increased costs of construction.

Since rebuilding according to current building codes may suspend operations for an extended period of time, self storage facilities can purchase Business Interruption insurance to cover reductions in net income caused by an inability to continue business operations. Since payroll, mortgage/rent payments, money owed to suppliers, taxes, and other continuing expenses must be met, Business Interruption insurance may provide badly needed capital when operations are suspended.

Combining Ordinance and Law coverage with Business Interruption coverage, self storage facilities increase the likelihood of surviving not only the initial property loss, but a protracted suspension of operations resulting from the obligation to rebuild in accordance with current building codes.

While the decision to obtain Ordinance and Law and Business Interruption coverage should be easy, understanding specific policy provisions and terms can be difficult. Since there may be variations among different policy forms, it is important that you consult with an experienced insurance agent to discuss your options.

If you would like more information about protecting your self storage facility or obtaining Ordinance and Law and Business Interruption insurance coverage, please contact us.

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Protecting Valuable Business Papers and Records

Businesses often prepare an inventory of valuable property to simplify the process of filing an insurance claim in the event of a loss. For some reason, papers and records rarely make the list, even though losing these documents could disrupt business operations. Fortunately, insurance is available to cover the unbudgeted and often significant costs of dealing with a loss of business papers and records.

Valuable Papers and Records (VPR) coverage is a type of property insurance that covers the cost to research, replace or restore information that is lost when papers and records are damaged or destroyed. This insurance generally covers papers and records owned by the insured or in the insured’s care, custody and control, and it is often found in property insurance and small business owners’ policies. Large or unique risks may require a separate, stand-alone policy.

Notably, since VPR covers the cost of reproduction, it is not intended to protect items that cannot be replaced or duplicated because they will only be valued at the cost of blank material of substantially identical type. So, if an original Declaration of Independence is lost, the insurer will cover the cost of a blank piece of paper. To ensure maximum protection, irreplaceable items must be listed separately under the policy and possibly appraised so their value can be determined. In some cases, a separate insurance policy may be necessary.

VPR coverage is ideal for most businesses, including:

accountants
law firms
architects and engineers
physicians and medical offices
businesses that regularly produce and rely on important documents, such as files, receipts, invoices, lists, contracts, etc.

When shopping for VPR coverage, it is important to know what the policy does and does not cover. Although definitions may vary, ‘Valuable Papers and Records’ are generally defined to include documents, manuscripts and records that are inscribed, printed or written, including abstracts, books, deeds, drawings, films, maps and mortgages.

VPR policies do not typically cover money or securities. Importantly, once papers and records are reduced to electronic format or saved on some form of electronic media (CDs, hard drives, tapes, disks, etc.), they are generally excluded from coverage under a VPR policy, and need to be insured under an Electronic Data Processing policy.

The cause of the direct physical loss or damage to the papers and records must be a covered loss under the policy. Losses caused by errors in processing or copying, earth movement, war, neglect, nuclear hazard and various events involving water are typically not covered. Since even the broadest policy forms have exclusions, it is important to review them carefully.

Coverage limits should be enough to cover the cost of replacing or reconstructing lost information through research or transcription from other sources. While VPR generally covers items kept at the premises listed on the policy’s declarations, papers and records kept at an unlisted location may be subject to a lower limit (sub-limit) or may be excluded from coverage altogether. Make sure the policy lists all locations where papers and records may be stored.

In addition to VPR insurance, businesses may consider storing papers and records in a facility with the reputation, amenities and expertise needed to offer maximum protection. According to Carlos Diaz of Value Store it, “Not all storage facilities offer a comprehensive approach to this risk. Not all solutions are the same.” Some additional services to look for in a storage facility include:

Professional and responsive staff
Physical features/amenities (fire and security system, climate control, etc.)
Experience in handling and storing similar papers and records
Comprehensive Solutions (digitizing, e-filing, bulk shredding, etc.)
Ability to comply with applicable laws (HIPAA, Gramm-Leach-Bliley, etc.)

Be sure to visit the storage facility and check references, and before moving in, confirm coverage by checking the VPR policy. If it has lower limits for papers and records stored off-premises or excludes coverage altogether, the storage facility may need to be added to the list of covered locations.

Though protecting against the loss of papers and records is rarely high on the list of priorities, it should be. Those who underestimate the importance of papers and records may one day recognize they are not just valuable, they are invaluable.

If you would like to learn more about protecting your valuable papers and records, please contact us.

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Protecting Your Business from Cyber Liability Risks

Almost every business relies on computers, networks and electronic data to support their business operations and serve their customers. What most business owners don’t realize is the substantial exposure associated with their use of electronic platforms and the data those platforms host. Today, Cyber Liability insurance is available to business owners for the exposures associated with their use of electronic platforms.

Most businesses are not aware that standard Commercial General Liability policies do not contemplate these types of claims, leaving companies with significant gaps in coverage for cyber-related perils. Any business that collects or handles confidential information, stores client data, uses email, generates revenue online, relies on the internet for transactions or uses a network to conduct its business is in need of this important coverage.

Cyber Liability insurance is designed to protect the insured against direct and indirect loss to the Company’s assets as well as third party claims of negligence. Losses can be caused by hazards such as the transmission of virus/malicious code, denial of service attacks, physical theft of a computer/device, accidental release of an insured’s confidential data and attacks by hackers. First party coverage under the Cyber Perils policy includes:

Loss of data
Loss of business income
Electronic theft
Cyber extortion
Security event costs

Third party claims of negligence can include allegations that an insured:

Permitted the unauthorized disclosure of confidential information
Failed to secure a Network against attack
Committed an act of defamation

Of particular interest to many businesses are data breach security concerns. Recent studies have shown that over 70 percent of all data security breaches are experienced by small to medium sized businesses and the cost of a breach can be staggering. The average cost for a data breach claim is over two million dollars. These damages include the cost of data reconstruction, customer/client notification and credit monitoring. This leaves small businesses most at risk because they are unlikely to have the time and resources necessary to handle a data breach security event.

Given the variety and complexity of these occurrences, an experienced insurance agent should be consulted to ensure that proper coverage is obtained and that no gaps remain. If you would like to learn more about insuring against data security breaches, contact us.