CREJ - Retail Properties Quarterly - November 2017
In the world of Amazon and online shopping, we often think that buying something for cheap is a deal. Similarly, it is easy to think that the cheapest insurance quote is the best. This stems from viewing insurance as a liability, somewhat like taxes, rather than an asset that is purchased to protect the business against possible loss. Insurance is a relatively small investment to protect against a potential future loss. For the cost of an insurance premium, one can allocate the risk of losing a property (in the case of a fire) or losing significant money (in the case of a liability claim) to the insurance company. The costs of insurance premiums are related to the amount and types of protections or coverages purchased. Simply shopping for the cheapest policy may leave substantial gaps in coverages and significant exposures that can have catastrophic effects if disaster strikes. Instead, focusing on a transfer of risk that fits the needs of the insured will help identify coverages that are most relevant and necessary to protect against the financial effects of a significant disaster.
• Education is key. Understand the key elements of a standard property insurance policy and ask qualifying questions when buying insurance. No insurance policy covers everything. It is just as important to understand what the insurance policy does not cover as it is to understand what is covered. It is important to identify the following. First, what are the major coverage gaps? Some of the most common in property policies are actual cash value (pays only the depreciated cost and difference must be met by the insured), code or law and ordinance (costs that will be incurred to bring a building up to current building code), underinsured and shortfalls in extra expense and business income losses related to property damage. Second, what is excluded? Certain types of claims are excluded under many common insurance policies. Some of the common exclusions are flood, some types of water leaks, testing and mitigation for asbestos, mold and lead, loss due to nuclear action, terrorism, war, etc. Third, what is the deductible? The deductible is the insured’s contribution to the loss. It is important to know the amount of the deductible and have a strategy in place to cover the cost of it. Deductibles can be fixed, have separate amounts for different types of claims or percentage deductibles (percentage deductibles are a percentage of the whole amount of policy coverage not a percentage of the loss or claim). Knowing the amount of the deductible and having a plan for paying it is critical. • Have a loss protocol in place. When a loss takes place is the worst time to determine how to recover and find the resources necessary to make recovery possible. Having a protocol in advance that properly identify losses and report them to the insurance company on time can prevent significant loss to the company. A good loss protocol involves several steps. First, identify a loss and determine if it is claimable. If a claim is below the deductible or otherwise not covered, it may be necessary to notify the insurance company in certain circumstances, but otherwise a claim produces no benefit and can in some circumstances create additional difficulty for the insured. Second, meet the duties of the insured under the policy. There are specific requirements in every policy that the insured agrees to by purchasing the policy. Knowing these duties and incorporating a strategy to make certain these duties are fulfilled in the event of a loss is critical to ensuring the policy benefits are payable. Third, have a procedure for determining the accurate value of the loss and insurance coverage. There are many fantastic insurance companies and claims professionals who assist when a claim takes place; however, they represent the best interest of the insurance company and do not understand your business as you do. Having resources to ensure your loss is accurately calculated and all aspects are properly evaluated will help make the claim process a smooth and effective means to restore your business after a disaster. • Use the right tools for the right job. There are many facets to understanding and identifying risk exposures and just as many, if not more, to handling losses and ensuring the proper resolution after a disaster. There is no one single solution for all risk management and loss needs, so it is important to identify resources for both policy selection and loss resolution. With the right tools in place, property owners and managers will be able to quickly identify the necessary insurance and have the resources to quickly and effectively recover from a disaster.