Tag: Insurance Programs

How Secure is Your Security Blanket?

Too often, when shopping for insurance, consumers will focus most of their attention on the amount of the premium they will have to pay rather than on the financial strength of a prospective insurance company. Unfortunately, those who focus primarily on premium rates may find that they have “backed the wrong horse,” so to speak, and could wind up suffering big losses.

Although the cost of insurance is certainly an important factor when seeking coverage, the financial strength of an insurance company can prove to be the most significant factor of all, especially in instances when a financially weaker insurance company is chosen over a stronger one. After all, an insurance company that becomes insolvent or bankrupt will likely not be able to pay the claims of its policyholders; if you are one of those policyholders, then your insurer’s insolvency may have serious implications for you or your business.

Conceptually, an insurance company’s ability to pay the claims of its policyholders is fundamental to the underlying purpose of insurance. The significance of premiums, deductibles, coverage limits, policy terms, and exclusions virtually vanish when the prospect of insurer insolvency surfaces. After all, what difference does the amount of the deductible make if there is no money to pay a claim?

Although it is always important to evaluate the financial strength of an insurance company, doing so takes on even greater significance during periods of national economic contraction because insurance companies face considerable obstacles during recessionary periods. Insurance companies are, after all, businesses like any other.

A business is considered insolvent when it is unable to pay its debts as those debts become due. And the debts of insurance companies are generally the claims of policyholders. Thus, when viewed from this perspective, it becomes clear that not only shareholders are injured when an insurance company becomes insolvent. Policyholders with claims may also be left holding the bag for any losses that they assumed their insurers would cover.

Although there are no guarantees that a particular insurance company will remain solvent, it is commonly understood that financially strong insurance companies are more likely to meet their ongoing obligations to policyholders than financially weak ones. That’s why a company’s solvency, in the context of being able to pay claims as they become due, is critical.

An insurance company may become insolvent for a number of different reasons, such as mismanagement, undercapitalization, poor underwriting standards, ill-advised investments of premium reserves, or overexposure to a specific risk. The existence of one or more of these conditions may increase the risk of insurer insolvency.

For example, an insurance company that elects to sell an inordinate number of wind insurance policies in coastal communities, when compared to the insurance company’s overall risk exposure, would be susceptible to a large loss in the event of a single catastrophic hurricane. In this example, the imprudent risk is that of aggregation. This is why insurers typically favor limiting their exposure to loss from a single event to a small percentage of their overall capital base. However, an insurance company that operates contrary to this logic by overexposing itself to a specific risk faces the very real possibility of being wiped out financially in the event that risk comes to pass.

Given the severity of the consequences that usually flow from insurer insolvency, there is a benefit to knowing whether or not a prospective insurance company possesses one or more of the conditions that may lead to insolvency. Unfortunately, conducting the requisite investigatory due diligence may be difficult, if not impossible, for the average insurance consumer. However, there are resources available to assist consumers with this task.

A.M. Best®, a company that evaluates and rates the financial health of insurance companies, conducts independent evaluations to form an opinion regarding an insurance company’s financial strength. Based on an evaluation of an insurance company’s balance sheet, operating performance, and business profile, A.M. Best issues its “Financial Strength Ratings,” which have been recognized as a benchmark for assessing an insurance company’s financial strength.

The Financial Strength Ratings assign letters to convey A.M. Best’s opinion as to the financial strength of a particular insurance company. Similar to academic report-cards, a higher rating suggests that, in A.M. Best’s opinion, a particular insurance company is more likely to meet its ongoing obligations to policyholders as opposed to an insurance company with a lower rating. “Secure” insurance companies are graded as Superior (A++, A+), Excellent (A, A-), and Good (B++, B+). “Vulnerable” insurance companies are graded as Fair (B, B-), Marginal (C++, C+), Weak (C, C-), Poor (D), Under Regulatory Supervision (E), In Liquidation (F), and Suspended (S).

In addition to A.M. Best, there are other rating agencies available for those wishing to investigate the financial health of prospective insurers. However, consumers should understand that each rating agency may use different standards, processes, and methods to rate insurance companies. Despite the fact that many such agencies may use some form of alpha-rating methodology, not all “A” ratings are necessarily created equally. Consumers should investigate not only the methodology used by their rating agency of choice but also its reputation in the insurance and financial industries. As usual, the more information insurance consumers obtain at this stage of the purchasing process, the better off they will likely be.

Regardless of which system is used, it is important to note that a rating is not intended to be a guarantee of an insurance company’s financial strength. The ratings merely reflect opinions based on detailed evaluations. Consequently, a higher rating does not guarantee solvency, nor does a lower rating necessarily demand insolvency. This is because the ability to predict an insurance company’s future solvency falls short of mathematical precision. Insurance companies must rely on probabilities, not absolutes when underwriting risks and setting premiums. When calculating such probabilities, insurance companies generally apply a mathematical theorem known as the law of large numbers. If the predicted probability of a loss is high, then the insurance company will either charge a higher premium or reject the risk outright.

However, unknown or unanticipated risks may compromise the predictability provided by the law of large numbers. Since these risks were unknown, the actuarial science initially used to calculate the risk is undermined. In such cases, even insurance companies with the highest ratings may not be able to survive a deluge of unanticipated claims for which premiums have not been collected and reserves have not been allocated.

Given the inherent imprecision of insurance underwriting, it is unlikely that forecasting the likelihood of continued solvency will ever be sufficiently predictable so as to warrant a guarantee. Nevertheless, the wisdom of considering a prospective insurance company’s financial strength should never be dismissed, and at least a cursory review of the insurer’s financial rating should be undertaken.

It is worth noting that insuring with a highly rated insurance company is not always a viable option. One reason is that the security provided by a highly rated company often comes at a price, usually in the form of higher premiums. For many consumers operating on a fixed budget, going with an A-Rated insurance company may be cost prohibitive.

Another obstacle that consumers may encounter is the fact that many A-Rated companies are simply not offering the type of insurance coverage being sought. For example, in light of the devastating hurricanes of a few years ago, many homeowners living in coastal communities have experienced great difficulty finding insurance companies willing to insure against wind damage. In such cases, many consumers simply do not have the option of going with a highly rated insurance company.

Despite any obstacles that may stand in the way of obtaining insurance from a highly rated company, consumers should nonetheless add the financial strength of prospective insurers to their list of factors to consider when purchasing insurance. By doing so, you may increase the likelihood that the insurance company that is always there to collect your premiums will also be there to pay your claims.

Preventing “Unavoidable” Accidents: More Help for Organizations Seeking to Minimize Losses and Keep Auto Insurance Rates Down

Let’s start by recalling what we mean by “preventable” accidents – those accidents that can be avoided in spite of any adverse driving conditions and in spite of any unsafe practices on the part of the driver who caused the accident. The key to preventing such accidents is a driver’s consistent adherence to the National Safety Council’s techniques for driving defensively, skills that should serve as the foundation for all employers’ driver training programs.

Previously, we explained how accidents can be prevented by crossing intersections correctly, passing vehicles safely, and maintaining a proper driving distance from other vehicles. Now we’ll look at similarly challenging situations and explain how drivers can keep themselves and their vehicles safe.

“The Vehicle Came at Me from Nowhere!”

Typically, an accident in which a driver is struck head-on by an oncoming vehicle that seems to “come from nowhere” is thought of as unavoidable. But accident investigators, after determining the exact locations of the vehicles before and at impact, can usually tell if it was possible for the vehicle that was struck to have avoided the collision.

Say, for example, a vehicle strikes another, head-on, as a result of a foolhardy passing attempt on a two-lane road. Investigators will try to determine if the driver who was struck could have prevented the accident by:

  • Moving to the right;
  • Slowing down or stopping;
  • Flashing headlights; or
  • Sounding the horn.

While fault may be readily assigned to the vehicle attempting the reckless pass, such a determination does not mean the other driver could not have taken action to prevent the accident.

Pedestrians: Do They Always Have Right of Way?

Accident review findings generally uphold the assessment of fault to a driver who strikes a pedestrian. But what about when the pedestrian “jaywalks” by dashing out from between parked cars? Or recklessly crosses a busy street? Are accidents caused by heedless pedestrians preventable?

Yes. School zones, residential streets, and other areas with regular pedestrian traffic must be traveled at speeds appropriate to the situation, and that usually means below the posted limits. Similar logic applies with regard to bicycles, scooters, and other slower-moving modes of transportation; since these vehicles are often driven by young, less experienced drivers, operators of cars and trucks must reduce their speed when such vehicles are within sight distance.

Ultimately, the failure to take necessary driving precautions when the presence of pedestrians calls for reduced driving speeds may result in preventable accidents.

Turn, Turn, Turn

It’s no surprise that, along with passing maneuvers, executing turns generally requires the most care on the part of drivers. Since the driver making the turn is in control of both the vehicle and the situation, the turning driver is also expected to prevent accidents by:

  • Never squeezing out other vehicles, scooters, bicycles, or pedestrians;
  • Signaling all turns;
  • Positioning the vehicle properly when turning;
  • Never making illegal or unsafe U-turns;
  • Checking pedestrian and bike lanes before turning; and
  • Taking any defensive actions required by the situation.

Other Preventable Accidents

Beyond the obvious challenges inherent in crossing intersections, passing, and turning, there are other driving situations in which accidents are also likely to be judged preventable, such as when drivers fail to:

  • Adjust to adverse weather conditions, including rain, snow, fog, ice, etc., or avoid such conditions entirely;
  • Issue or heed warning signals when encountering traffic near alleys, driveways, and other specialized intersections;
  • Properly judge clearances of fixed objects (unfamiliarity with the area or the driving conditions is not, by itself, a valid excuse);
  • Safely park a vehicle by leaving it in the wrong gear (possibly resulting in a roll-away), double-parking the vehicle, leaving the wheels turned in the wrong direction, leaving it unlocked and accessible, etc.; and
  • Obtain needed repairs to a vehicle with detectable problems, resulting in mechanical failures, breakdowns, and unsafe operation.

Accident ‘Unpreventability’

After educating your organization’s drivers on standards of accident preventability, you might be asked the question:

“So is an accident ever not preventable?”

The best, and perhaps the only, answer to this question is to remind drivers that while it is impossible to list every way that accidents can be avoided, the following standards will always be applied when their driving is evaluated:

Defensive drivers:

  • Make allowances for other drivers’ lack of skill and improper driving habits;
  • Adjust their driving to the current weather, road, and traffic conditions;
  • Compensate for the unsafe actions of pedestrians;
  • Remain alert to accident-producing situations and take every precaution to avoid accidents; and
  • Know when they must yield right of way, slow down, or stop to avoid being involved in accidents.

Only by maintaining and enforcing high standards for your drivers will you be able to maintain low commercial auto insurance rates.

When Are Accidents Preventable? A Guide for Organizations Seeking to Minimize Losses and Keep Auto Insurance Rates Reasonable

Every organization’s risk manager dreads a phone call like this from one of the company’s drivers:

“I’ve been in an accident. I’m okay, and so is the other driver, but my vehicle is totaled. It wasn’t my fault, though – the other car just came from nowhere!”

Of course, you’re relieved no one was hurt, but you can’t help thinking with chagrin, “This could cost us a lot of money.”

And you have good reason to be concerned. Aside from the cost of replacing the vehicle and the likely disruption in business operations, you’re worried that another claim against your commercial auto policy could result in a substantial increase in your premium.

That’s why the time to act is before you send your drivers out on the road, and that means having in place a robust loss control and safety program that includes training drivers in accident avoidance. And since the objective of all safe driving courses is to teach drivers to prevent accidents from happening in the first place, drivers must be taught the concept of preventability.

Preventability is the basis for determining whether an accident could have been avoided in spite of any adverse driving conditions and in spite of any unsafe practices on the part of the driver who caused the accident. In other words, even if a driver is not ticketed for or charged with causing an accident, that doesn’t necessarily mean that the accident was not, from the driver’s perspective, preventable.

It should be made clear that preventability is not, in this context, a legal concept used to determine fault or establish negligence. Instead, preventability is a determination based on the belief that driving safely and minimizing the risk of accidents requires consistent adherence to defensive driving principles and techniques endorsed by the National Safety Council.

Of course, given the many factors involved in auto accidents, establishing specific criteria for determining when an accident should be deemed preventable is difficult. Nonetheless, managers must have in place standards for preventability that they explain clearly to drivers and that they apply consistently and impartially when assessing drivers’ performance.

Negotiating Intersections

It’s well known that many accidents occur at intersections, and while you might assume that even safe drivers are powerless against drivers who run red lights or stop signs, that’s not the case. A basic principle of defensive driving is that drivers should approach, enter, and cross intersections in a manner that compensates for other drivers’ failure to obey traffic signs or conform to traffic laws.

Here’s a perfect example: After the light at an intersection turns green, a driver immediately accelerates and is then struck by another vehicle, coming from the opposite direction, that has run a red light.

The driver whose vehicle was struck will not be charged with the accident, as it is clear that it was the other driver who broke the law. But the accident might still have been prevented if the driver not at fault had paused, looked to the left, to the right, and then to the left again before proceeding. In other words, that driver could have prevented the accident by allowing for the other’s recklessness.

That’s why defensive drivers, when they encounter the complex traffic flow, blind spots, and illegal maneuvers of other drivers that are all too common at busy intersections, can prevent accidents by proceeding with caution.

When Cars Collide

The key to preventing front-end collisions rests largely on whether drivers observe the proper following distance at all times. In ideal road conditions, a driver should maintain a two- to three-second following distance between his or her vehicle and the one immediately ahead; in bad conditions, an even greater following distance is recommended.

Nighttime front-end collisions often occur when drivers “overdrive their headlights,” that is, they travel at a speed at which they cannot come to a complete stop within the distance illuminated by their vehicle’s headlights. Instructing drivers to stay within “the headlight zone” is key to preventing nighttime collisions.

When their vehicle is struck from behind in a classic “rear-ender,” drivers may automatically assume that the accident could not have been prevented, but experience suggests otherwise. The risk of rear-end collisions increases if the lead driver has not maintained a proper following distance with the car in front. So when a driver must stop suddenly to avoid hitting the car ahead of his or her own, and then gets rear-ended by another tailgating driver, that accident may legitimately be deemed “preventable.”

Similarly, other rear-end collisions that can be prevented include those that occur when the driver in front:

  • Allows the vehicle to roll backwards;
  • Stops too abruptly when a traffic signal changes (usually because the driver was speeding); and
  • Fails to use turn signals.

Backing accidents are almost always preventable, even when the driver reversing the vehicle is getting “help” with the maneuver. Simply put, the driver is the only person who can control the vehicle and therefore is entirely responsible for checking the vehicle’s clearance by using rear- and side-view mirrors properly and looking backward when necessary.

So what should defensive drivers do to prevent both front- and rear-end collisions? Slow down, pay attention, maintain a safe distance from other cars, and be sure to signal their intentions to other drivers.

Passing Fancies

Accidents that occur during passing maneuvers are preventable for the simple reason that the act of passing another vehicle is almost always voluntary; therefore, the passing driver is responsible for and capable of preventing accidents that could result from his or her driving decisions.

Let’s say that a driver is struck by the vehicle he or she is attempting to pass because that vehicle unexpectedly and improperly speeds up to avoid being overtaken. While the other driver has technically “caused” the accident by striking the passing vehicle, it is possible that the passing driver’s judgment will be deemed poor and the maneuver ill-considered. Such an accident is certainly preventable.

And what about when a vehicle is sideswept or cut off by another vehicle attempting to pass it? If the driver being passed has failed to yield to the other vehicle by slowing down or by safely moving to the right, then the resulting accident, though not the fault of the driver being passed, could have been prevented by defensive driving.

Safe Driving is No Accident

Of course, there are other situations in which driving defensively can prevent accidents often thought of as unavoidable, and we’ll discuss some of these in next month’s newsletter.

But it’s always a good idea to review the standards of defensive driving with those employees who operate a vehicle as part of their job.

Defensive drivers:

  • Make allowances for other drivers’ lack of skill and improper driving habits;
  • Adjust their driving to the current weather, road, and traffic conditions;
  • Compensate for the unsafe actions of pedestrians;
  • Remain alert to accident-producing situations and take every precaution to avoid accidents; and
  • Know when they must yield right of way, slow down, or stop to avoid being involved in accidents.

Adherence to these standards is in both your employees’ and your organization’s best interest.

Crossing Borders: The Deficiencies of Domestic Insurance Policies in International Commerce

Today, organizations from around the globe are expanding their presence and venturing into international markets. With the evolution of the Internet and advances in technology, world markets are more accessible than ever, and organizations like yours are seeking foreign opportunities or are already selling into them. But are you aware that most United States domestic insurance policies do not fully extend to protect you in these foreign territories? Whether doing business in the European Union, Central or South America, or some far-away exotic port, most insureds that export, trade, or sell in these territories are in fact uninsured.

All domestic insurers, including big names like The Hartford, CNA, Liberty Mutual, and State Farm, define the territories within which a named insured can operate and expect to receive policy benefits. Generally, these territories are limited to the United States (its territories and possessions), Puerto Rico, and Canada.

In assessing their degree of exposure, organizations currently doing business in foreign territories need to ask a number of questions, including:
What if organizations hire ‘foreign nationals’?
What if organizations sell their products directly into an overseas market, whether through a direct sales force or via the Internet?
What if a product or a component of a product is made overseas?
What about property that is in transit or in the custody of salespeople?
What about an injury to a foreign worker or an American worker in a foreign territory?
Fortunately, these and other risks presented by the global marketplace can be affordably transferred by express language within domestic policies or through alternative coverage forms known as ‘International Insurance.’

Read your current policy and note its limitations:

“Coverage territory” means: The United States of America (including its territories and possessions), Puerto Rico, and Canada… and all other parts of the world if the injury or damage arises out of goods or products made or sold by you in the territory described above.

The language further states that other covered injury or damage will be insured solely if it arises from the activities of a person whose home is in the territory above but who is away for a “short time” on business. But in no event does an insurance company have a duty to pay damages unless such damages are based on the merits of a suit brought within the stated territory.

The implications of an uncovered risk in a foreign territory may extend well beyond the obvious matters of defense and indemnity. If a lawsuit brought against you in a foreign court succeeds, your assets abroad may be seized to satisfy a judgment, or you may be barred from doing further business in that country. Furthermore, a long-arm statute may exist that could allow a foreign judgment to be satisfied by assets held here in the United States.

Liability and property exposures are not the only risks that need to be addressed when an organization conducts business internationally. State workers’ compensation laws typically extend benefits of the state to employees temporarily away from the workplace, but not away permanently or for an extended period of time. Although “temporary” may not be specifically defined in the policy, a period of six months is the usual standard. If an employee is moved overseas for an assignment longer than six months, a foreign voluntary workers’ compensation endorsement should be added to the domestic policy; such an endorsement provides state benefits for injuries to workers and includes, among other benefits, repatriation expenses. If, however, a foreign worker is hired in a foreign territory, or a United States worker is eligible for foreign benefits, as defined by the foreign territory, an organization needs to consider the international foreign workers’ compensation coverage form.

International insurance has additional benefits as well. Some of these policies provide limited health benefits, kidnap and ransom, and auto liability. Domestic health insurance programs often have limited medical benefits when an insured is ill or injured in a foreign territory. As important is the territorial limitation of domestic automobile policies. In the event of an accident or injury to a third party or property damage, domestic policies simply do not respond.

International policies also offer kidnap and ransom extensions, which are invaluable, considering that the risk of kidnapping is at an all-time high. Corporate executives, as well as wealthy citizens and their families, are attractive targets for kidnap and extortion when working or traveling in a foreign country. International policies can provide expert security consultation prior to going to a foreign country and may cover the cost of paying ransom in the event of an abduction.

As more and more business is transacted in many parts of the globe, the start of the new year may be the right time to get an insurance check-up to determine if your organization’s assets are sufficiently protected.

Filling the Risk Management Gap: How Employment Practice Liability Insurance Can Protect Your Business

Consider this scenario:

An employee in your organization files a discrimination lawsuit, alleging that she was not promoted because of her gender. You’re confident that the promotion went to the better-qualified candidate and believe you have sufficient documentation to support this decision. Still, having to defend your organization against her claim in a court of law could be costly; legal fees might seriously deplete your business’s cash reserves, perhaps even lead to bankruptcy. But you were smart: Two years ago, you purchased an Employment Practice Liability Insurance (EPLI) policy, which covers precisely this sort of situation. While you’ll have to do some serious damage control with your clients and work to boost employee morale, your business is protected from devastating financial losses.

Learn more about employment liabilities with our online course “An Overview of Employment Liabilities.”

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Such a scenario is quite possible in today’s increasingly litigious business climate, in which even the most proactive employers can find themselves in violation of one of the many employment laws governing the workplace. That’s why EPLI has become an almost necessary part of a business’s insurance umbrella. EPLI protects employers in the event of such workplace claims as discrimination, wrongful termination, and sexual harassment. Generally, a policy covers eligible losses stemming from such causes of action, as well as associated litigation costs, including attorneys’ fees. And the insurer will provide the services of attorneys who specialize in defending against such claims, significantly increasing the likelihood that employers will prevail in the event litigation does occur.

Maybe you think that your business’s Commercial General Liability (CGL) policy protects you in such situations. Think again. In most cases, CGL policies specifically exclude employment practice claims. All CGL policies protect your business against losses resulting in bodily injury or property damage; employment practice claims, however, generally involve injuries that are mental, emotional, and economic in nature and are therefore outside the range of protection offered by CGL insurance.

What does an EPLI policy typically cover? Among the most common situations are:

  • Discrimination and retaliation;
  • Sexual and general workplace harassment;
  • Negligent hiring;
  • Breach of employment contract;
  • Wrongful termination, dismissal, or discharge;
  • Violations of the Family and Medical Leave Act;
  • Situations involving defamation, libel, and slander; and
  • Denial of training or deprivation of seniority.

EPLI is available in many different forms. Most commonly purchased as a stand-alone policy or as an endorsement to a Directors & Officers policy, an EPLI policy is generally available in claims-made format, meaning that the policy will cover only those claims made during its term. An EPLI policy also requires that the insured give prompt notice to the carrier as soon as the insured becomes aware of facts or circumstances that might give rise to a claim. Most EPLI policies are subject to a single-policy aggregate limit of liability covering both defense and indemnity, meaning the costs of defending against a claim will diminish the amount paid to cover settlements or judgments. Some carriers will allow an insured to purchase defense as well as policy limits, thereby placing the litigation defense costs outside the amount available for indemnity. Ultimately, the best course of action is to consult your insurance agent, who can assist you in choosing the policy that suits your business’s needs and provides you with the appropriate level of protection.

As with any liability policy, EPLI may not cover certain risks, including:

  • Risks covered by other policies, such as a CGL;
  • Intentional, criminal, fraudulent, or malicious acts;
  • Contractual liability;
  • Strikes and lockouts; and
  • Violations of the Occupational Safety and Health Act.

Of course, EPLI insurance should be considered only the last line of defense in a healthy business’s risk management arsenal. As is the case in so many situations, knowledge is power: Providing your employees with comprehensive, regular training can substantially reduce the risk that they will engage in the sort of illegal or unethical behavior that leads to litigation. Also, well-written and properly enforced Human Resources policies and procedures are essential for keeping your business in compliance with the many and varied regulations covering the workplace. A good example of the inestimable value of training in preventing employee misconduct is the decline since 2000 in the number of sexual harassment claims filed each year; the drop is often attributed to the comprehensive sexual harassment training many employers now require as a condition of employment. By contrast, one area that seems to be giving rise to more claims against employers is that of wage and hour law; given the ambiguities of some businesses’ salary classifications and overtime policies, there is more room for charges of improper treatment that can lead to litigation against an employer. And though most EPLI policies currently exclude wage and hour claims, some insurers have begun offering coverage for these claims as an extension of an EPLI policy.

The good news is that EPLI policies are practical and usually quite affordable. You should carefully examine your business’s training programs, employment practices, and compliance record to determine its degree of exposure to litigation and weigh these factors against the costs of EPLI. Such a risk inventory may make clear that the cost of an EPLI policy may be a relatively small price to pay when measured against the ruinous financial penalties that can result from employment-practice litigation.

Soft Costs Hit Hard: Do You Know What Your Insurance Policy Does NOT Cover?

Most property insurance policies guarantee the replacement of your property in the event of a loss. These policies, which cover such things as concrete costs, flooring, ceilings, and plumbing systems are often silent when it comes to those costs you cannot visibly see. Costs such as consultant’s fees, communications costs, and moving or relocation costs, are referred to as soft costs, and more often than not, they go uncovered.

Soft costs can best be defined as those indirect expenditures that are incurred in the repair and rebuilding of a property. They are those costs that while just as necessary, do not include the “bricks and mortar” needed to complete the job. Soft costs most often must be the result of a “loss” to Covered Property from any of the Covered Causes of Loss which delays the project’s completion beyond the planned completion date.

While some insurance policies make a quick reference to soft costs, most do not include soft costs under the scope of “property insured,” and thus do not cover them. If policies do not directly reference the reimbursement of soft costs, many property owners can expect to foot the bill when it comes time to rebuild. This is a scary thought given that soft costs can account for as much as 30% of the costs incurred in rebuilding a home.

What insureds will find if they closely examine their insurance policies is that their “Statement of Values,” which outlines the replacement cost value of their property, does not include soft costs. This statement is the very basis for loss settlements that occur after a disaster. Therefore, if soft costs are not even considered as a replacement cost, how can insureds expect them to be covered?

Business owners should also consider soft costs when calculating their Business Interruption Insurance. Much like Direct Damage Insurance, it is unlikely that Business Interruption Insurance will cover such things as additional consulting fees, financial costs, permits, and interim housing, unless they are specifically addressed in the policy.

Many business owners mistakenly believe that because their Business Interruption Insurance policy includes a “Period of Indemnity” clause, that most soft costs will be covered. While they will be compensated for loss of profit following a disastrous loss, the period of indemnity only lasts so long, and many companies will find those soft costs accumulating after that time is up.

Insureds need to be aware of the reconstruction costs that are considered soft costs, and remember that they may or may not be covered. They should also speak with their insurance provider and determine which soft costs are covered under their particular policy. Some examples of soft costs are:

Home Address Linked To Risk Of Auto Accidents: How Do You Rate?

A study released by Quality Planning Corp (QPC), a San Francisco-based analytics company that helps insurance companies price insurance, reveals that a person’s physical home address, not just ZIP code, can predict the likelihood of an auto accident. The research, which consisted of an analysis of 15 million policyholders and 2 million auto claims, shows that people who live within a mile of a church or other religious institution are much less likely to be involved in an auto accident, as opposed to those who live within a mile of a restaurant.

In fact, living within one mile of an eating establishment increases the risk of auto accident by about 30 percent, while living within a mile of a church decreases the risk by 10 percent.

Wondering what other neighborhood locations increase the risk of accident? Living near grocery stores, schools, and banks all weighed in as high risk areas. Conversely, living near a doctor’s office, airport, or community park showed the risk of accident to be substantially lower.

“It’s important to remember,” says Bob U’Ren, QPC vice president of marketing, “that these observations are indicative of the area and we would naturally expect higher accident rates in higher traffic areas.”

Makes sense. But while some of the results seem predictable, other results are surprising. For instance, churches and elementary schools are ubiquitous in most neighborhoods, yet their accident rates are at opposite ends of the spectrum.

U’Ren adds, “There are also comparatively fewer homes and apartments, and generally lower vehicle use, close to parks and forests. But who would have thought it is more dangerous to live by an elementary school than a liquor store?”

The study does not really contemplate why certain areas demonstrate increased risk, but undoubtedly research on the subject will continue now that QPC has been able to refine auto risk assessment from the ZIP code level down to the street level.

“It’s well known that auto insurers use a policyholder’s ZIP code to calculate the risk he or she represents,” comments Founder and CEO of QPC, Dr. Daniel Finnegan. “New technology enables us to be even more accurate in determining the level of risk associated with a policy by identifying the specific risk factors associated with that policyholder’s home address.

“In our research to develop a new predictive loss model for auto insurers, we have identified more than 500 variables that are highly correlated to auto accidents, many of which are specific to a policyholder’s home address. Among the more interesting variables we found are hail storms, crime rate, topography, traffic patterns, occupation, street width and chiropractors per capita.”

QPC’s new predictive loss model assists auto insurance companies in their efforts to minimize rating error. The ability to assess risk at the street level, and not just based on ZIP code, provides a better predictor of property/casualty insurance losses, enabling insurers to rate more accurately. More accurate rating can mean better financial stability for the companies.

But what does more accurate rating mean for you? Well, some analysts argue that more accurate rating could mean a decrease in auto premiums. While this may be true for some drivers in certain locations, the opposite could also be true. In other words, auto premiums could go up if you happen to live near, say, an elementary school. And chances are good that you do.

Before you start house hunting for a place in the middle of a forest within a mile of a church, know that insurers are not likely to use these partly ambiguous correlations just yet to adjust auto premiums. More research is needed to understand why these risk factors influence auto accidents, and what can be done to mitigate those risks.

Long Term Care: A Major Concern for Today’s Baby Boomers

As the large numbers of Baby Boomers start to turn 60, many of them assume incorrectly that Medicare, Medicaid, supplemental policies or standard health insurance policies will cover their long-term health care expenses and needs. Consequently, many people do not plan ahead financially to provide for their care in the event of infirmity or extended illness.

Costs of services provided by a nursing home in Florida (based on 2004 numbers) can exceed $60,000 annually, or more than $5,000 per month. Costs for residing in an assisted living facility or nursing home continue to rise every year. The cost of quality “in home health care” is already approaching that of a nursing home.

A New England Journal of Medicine study stated that 43% of all people age 65 would either have to enter a nursing home or require long term care in their home. Another study by the Health Insurance Association of America has shown that more than 50% of all Americans will need some form of long term care during their lives whether in their home, at a day care facility or in a nursing home.

Based on the above numbers, it is easy to see how a retirement nest egg can be depleted when one major illness strikes an individual, spouse or family. How to pay for this potential expense is, and should be, a major concern for our ageing society.

There are five basic options available on how to finance the cost of care:

Pay for the Cost out of Savings- This option is usually chosen by the extremely wealthy. If this is the option you are considering, you must ask yourself if you will have enough resources to pay this expense and continue to maintain your desired standard of living.

Depend on Medicare/Medicaid – Medicare pays a limited amount, and it only pays under certain circumstances. Medicaid is designed for only the poorest individuals.

Other Medical Insurance – Most medical insurance plans do not pay for long term care expenses.

Depend on Family – This type of care and expense is physically and emotionally demanding- is this what you want for your family?

Long-Term Care Insurance – This insurance is most likely your best choice. A quality Long Term Care Policy will help you pay for the expenses associated with long term care, while helping protect your family and your assets.

If after reviewing the five options above you decide that Long Term Care Insurance is the option you want to pursue, it is important to understand the following:

What is Long-Term Care Assistance?

Long term care is the everyday assistance needed when a person suffers from a cognitive impairment-such as Alzheimer’s disease- or can no longer perform activities of daily living due to age or illness.

Long-Term Care Insurance provides assistance for the following activities of daily living:

  • Bathing
  • Dressing
  • Eating
  • Toileting
  • Continence
  • Transferring

What options exist as to where this assistance can be provided?

Assistance can be provided:

  • In your home
  • In the community (Adult Day Care Facility)
  • In an Assisted Living Facility
  • In a nursing home

What factors need to be considered if applying for Long Term Care Insurance?

The cost of a Long Term Care Insurance Policy is determined by many factors: your age at the time of application, your general health, medications you are taking, your prior medical history and the benefit options you select. The two factors that have the greatest effect on your ability to obtain a Long Term Care Policy at a lower rate are based on your age and overall state of health. The younger and healthier you are when you apply, and ultimately purchase a Long Term Care Policy, will have the greatest effect on your final annual premium.

The number of insurance companies offering Long Term Care products has continually grown as the product demand has increased. Selecting the correct company is now as important as selecting the correct coverage. Many companies that came into the marketplace priced their product too low and are now increasing premiums on a regular basis.

When selecting a company, the following questions should be asked:

  • How long has the company been selling the Long Term Care product?
  • Have they ever had rate increases, and if so, how frequently?
  • Does the company guarantee that the policy can never be cancelled (except for non payment of premium)?
  • What is the insurance company’s rating by A.M. Best Company? (A.M. Best is recognized as the premier Insurance Rating Service Company. Other premier rating companies to look at are Fitch, Moody’s Standard & Poor’s and Weiss. The higher the rating, the more financially secure the company.)
  • What percentage of the Long Term Care market do they write? (The larger the number of policies they write, the more likely the company is to know the business.)

How To Get Started.

The best place to start is to contact your local insurance agent and have their Long Term Care Specialist contact you. You should try to locate an agent who deals with Long Term Care as his primary product. The Long Term Care market is very complex and dealing with an agent who has limited access to various markets or has limited knowledge of the product is not a path to take. Have the agent educate you on the Long Term Care product(s) he is recommending and options open to you regarding the various coverages, riders or options open to you.

After you have spent time with the agent discussing the various factors that affect Long Term Care Insurance Coverage, decide on the basic factors you want included in your policy.

The major items to be considered are: the amount of coverage (daily or monthly), duration of benefits, deductible periods and inflation protection. It is also important to remember that there are significant discounts offered by all companies if both a husband and wife apply for and purchase Long Term Care Insurance at the same time. Once these basic factors are determined, the agent will be able to present you with an initial quote.

Once a final program and company have been selected, the next step will be to complete the company application. The agent will complete the application with you. All companies require that a portion of the annual premium accompany the application. Depending on the applicant’s medical condition, the processing of the application can take up to six to eight weeks for approval. Many companies require that a company representative personally interview each applicant and detailed reports from the applicant’s doctors may also be required.

Once the application is approved, a policy will be issued. The premium originally quoted by the agent may be different than that on the final policy. The insurance company’s underwriters determine the final premium based on the applicant’s final health condition. The agent will deliver the policy directly to you and will be responsible for collecting any additional premium that is due. You will have thirty days to review the policy. If during that time you decide not to keep the policy, it should be returned to the agent and a full refund will be issued.

Florida Homeowners Insurance Rates

Homeowner’s insurance rates in Florida already are third highest in the country, behind Texas and Louisiana. The primary factor for Florida rates is our huge hurricane risk. Not only does Florida have more exposed coastline than almost any other state, the concentration of population, high rises and other construction in southeast Florida is unmatched.

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