Insurance Tips

Insurance, It’s Worth It

An Industry Only A Mother Can Love

Years pass, decades pass and surveys are taken. The results are largely the same. Most folks don’t care much for insurance. Insurance is still seen, at best, as a necessary economic evil. It’s still common among insurance consumers to believe that, unless their policies have paid out on a significant loss, the premiums they’ve paid for coverage have been wasted.

Insurance people and the companies they work for don’t like this situation. However, it’s tough to make a case whether public perception is fair when, for so very long, that perception has not changed.

Really Think About the Big “I”

Take a moment to truly think about insurance. Yes, a policy’s value is best proven when insurance dollars are there; ready to pay for a loss. It’s great when, after an auto accident, your insurer sends out a claims expert to write an estimate, arrange to have a car towed for repairs, handles reserving a rental car, and then issues a check to pay for it all (except for your deductible). The same can be said after an insurance policy pays for a loss to your home or your business. However, the real value of insurance exists each and every moment that a loss doesn’t occur and no payments have to be made. Its value is there for every home that passes years without storm damage, without windows broken by baseballs, without suffering kitchen fires or roofs caved in by snow. Value is right there in front of your eyes as you drive past businesses, apartments, schools, hotels, factories, supermarkets and shopping centers.

Modern Economies Have to Have It

Owning anything of real value is a risky proposition. The greater the value, the higher the stakes caused by possible loss or destruction. Insurance, which protects most types of property and responds to lawsuits for most types of legal liability, enables a modern economy. Regardless whether you ever experience a loss, what is the chance that you could buy a home without insurance? Do you think that owning a car is likely without access to lenders? Even if a vehicle purchase can be handled without a loan, what about the danger you pose to others while driving?

What business of significant size could operate without the security provided by commercial insurance? Can you even imagine how everyone would have to scale back in order to handle their exposures to myriad losses without the ready availability of insurance? Many aspects of our modern lives would not be possible.

Do you still have a problem understanding the value of insurance? Would you like to imagine your world without it? Insurance….it’s worth it!

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Insurance Regulation – Part 1

Following are some key events that helped create the regulatory status of the insurance industry.

Paul vs. Virginia

In the 1860s, a New York insurance agent began insurance transactions into Virginia. Legal action was filed against the agent for failing to comply with Virginia law. The case made it to the U.S. Supreme Court, which addressed whether individual states maintained the right to regulate insurance. The court preserved the assumption that insurance was not interstate commerce and should remain under each state’s jurisdiction.

South-Eastern Underwriters

In 1943, the Department of Justice sued a group of insurers known as the South-Eastern Underwriters Association (SEUA) for violating the Sherman Anti-trust Act. The SEUA members’ agreement to use uniform insurance rates amounted to price fixing, a violation of federal law. The association argued that insurance was not commerce, so it was not subject to federal law. The case was appealed to the U.S. Supreme Court and in June of 1944, the Court reversed itself, ruling that insurance was commerce and, therefore, subject to federal regulation.

McCarran-Ferguson Act

This act was passed in 1945. Through this law, Congress reaffirmed the power of individual states by permitting the states to continue to regulate insurance. However, in order to maintain regulatory control after July 1, 1948, each state had to enact the same type of anti-trust laws used by the federal government. Every state eventually passed its own anti-trust laws, keeping insurance regulation at the state level.

Gramm-Leach-Bliley

In late 1999, the Gramm-Leach-Bliley Financial Services Modernization Act was introduced. This law removed long-standing distinctions that existed between insurance companies, banks, and investment services. The law was in response to marketplace and technological developments that blurred the traditional roles of different financial service providers. The law’s primary goal is to allow players in the financial services market to offer more complete services to consumers more efficiently and at less cost. The act also has created serious obligations on the use of information gathered on financial service consumers.

Current trends in insurance regulation are discussed further in part 2.

Insurance Regulation – Part 2

Part 1 discussed iconic, historical insurance regulation. This discusses the current regulatory status of the insurance industry.

Current Status

The insurance industry is affected by a variety of newer laws that reflect ongoing changes such as the blurring of financial services and the myriad laws related to the nation’s heightened concern with the following:

Terrorism
Data Security
Solvency
Transparency and
Privacy

Insurers, like their peers in the financial services sector, have a much broader obligation to comply with regulations involving gathering and use of financial data, reporting financial transactions, adhering to customer rights to privacy and responding to pressures to conform with national as opposed to state-level requirements. Newer regulation is having a tremendous influence on insurers, including the following:

Terrorism Risk Insurance Act (TRIA)

Introduced in 2002, as a direct result of the 911 Terrorist Attacks. It provided a layer of federally backed coverage for catastrophic damage caused by certified acts of terrorism.

Dodd-Frank Act

Created in 2010 and called, in full, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, it created several influential entities such as the Federal Insurance Office (FIO) which acts as a monitor of the insurance sector. The Financial Stability Oversight Council is an entity that coordinates several initiatives with State insurance regulators.

Own Risk and Solvency Assessment (ORSA)

This was an initiative created by the National Association of Insurance Commissioners (NAIC). It allows insurance regulators to regularly gather additional reports from insurers. The focus of the collected data is to assess individual insurer vulnerability to capital instability in their given insurance operation.

Marketplace pressures also change how insurers operate since banks, brokers and non-insurance financial entities are playing a larger role in providing protection against certain types of loss. The influence of these entities includes forcing insurers to operate in a similar manner in order to retain their market share.

Emerging trends in insurance regulation are discussed in part 3.

Insurance Regulation – Part 3

Part 1 discussed iconic, historical insurance regulation and part 2 focused on current trends. This discusses the insurance indutry’s emerging regulatory status.

Though those not familiar with insurance may dismiss it as dull and unchanging when is quite dynamic. Changes that affect insurance are occurring at an accelerated pace that includes disruption and increased scrutiny by regulators. A few emerging factors such as the following will likely drive how insurance regulation will change:

Cyber Security and Data Privacy
Analytics and Modeling
Fraud Epidemic
Insurtech

Cyber Security and Data Privacy

The European Union’s General Data Protection Regulation (GDPR) is having increased influence regarding how businesses collect, use and store data on its customers. Insurance companies interact with massive levels of sensitive information that is quite attractive to criminals. Further, such information is rich with details that are vulnerable to abuse. Regulators on the state, national and now, on the global stage will continue to study and refine their oversight of insurers to minimize the danger posed by illegal and/or improper use of customer data.

Analytics and Modeling

Insurer use of analytics and modeling to assist with business operations and compliance is increasing. While these tools may be valuable in increasing business efficiencies and offering improved compliance monitoring, there is an accompanying regulatory issue. Insurers may soon face greater obligations to analyze data to better serve customers via improved risk identification,

Fraud Epidemic

Insurance fraud has always been a tremendous problem for insurers due to actions of criminal organizations (large-scale, organized crimes) as well as individuals (primarily via inflating claims). Insurers often make up the significant losses caused by fraud by increasing premiums. This has spurred regulators to promote practices and enforce laws that improve an insurer’s ability to battle fraud. Insurers will have to devote more resources to assure regulators that they are using tools such as data analysis, social networks and creating and adopting anti-fraud plans.

Insurtech

Ongoing technical progress and its integration into insurance processes is a double-edged development. Certain innovations, including bias-free algorithms, wearables and smart contracts that streamline claims may be quite beneficial to insurers and consumers. Conversely, increased tech can also facilitate consumer-adverse outcomes.

For instance, biased algorithms can result in, essentially, automating questionable or illegal practices in underwriting and claims adjusting. Another area of concern is computer-assisted customer service such as robo-advice. The process may be operated in a manner that the information provided may not comply with insurance regulations. Regulator compliance-monitoring resources has, historically, been low and improper use of technology by insurers may not be sufficiently monitored.

While, ideally, insurers should be trusted to use technology in a fair manner, increasing efficiencies, identifying fraud, improving customer experience and lowering premiums, it is as likely that abuses will be a constant problem that will trigger additional and evolving laws and regulatory scrutiny.

Internet Insurance Information

The Internet has long been an ideal method for promoting and selling insurance. However, even as greater advantage is being taken of cyber insurance transactions, it is important to keep a bit of old, yet still excellent, advice – “Let the buyer beware.”

Possible Danger

In some respects, the ‘Net may be no more dangerous than getting information from other sources, but the need for insurance consumers to take care when using such information remains. One major issue is that published information is typically granted a high level of credibility (this includes the information you’re currently reading). It is important to be certain of any information before acting on it. Ten different sources of information can give you ten different answers. Therefore, the safest way to use information is to seek and sort through multiple, credible sources instead of fully trusting a single source.

Items to Keep In Mind

The Internet is an incredible tool. However it also provides many opportunities for acquiring information that may be useless or even harmful. Any user should remember the following:

it is often difficult to verify who has posted the information and whether the source has any expertise in the subject matter
material that appears on the Internet may be presented as facts when they are actually opinions or advertisements
the information may be accurate for one set of circumstances, but it doesn’t tell you how the information applies to other situations; at the very least, it should contain a disclaimer
no credible party may have taken responsibility for keeping the information accurate and current
the party that posted the information may possibly have a criminal intent
Internet publishers often forget that their audience is global and the information may only apply to a specific group or geographic location

When seeking information to meet your insurance needs, it’s important to discuss your concerns with an expert. A professional insurance agent is a good source for getting the answers you need to fit your unique coverage situation.

Managing Losses

What Is Loss Control?

The process of identifying and mitigating situations that may lead to losses is called “loss control.” Loss control may involve both simple and complex ways to reduce the likelihood of facing a loss. Besides insurance, you can choose to use protective devices, oral or written contracts to shift loss consequences, avoid ownership of items that may cause a loss (such as large pets), avoid dangerous hobbies and activities, or change your environment. Let’s look at some areas where you might exercise loss control.

Loss Control – Automobile

Use a bike or public transportation instead of owning your own car
Borrow or rent a car only when needed
Take a course on defensive or advanced driving skills
Practice defensive driving
Obey traffic laws
Avoid driving distractions such as texting
When appropriate, voluntarily yield right of way
Adjust driving habits according to driving conditions
Park or store your car where there is greater security
Install security alarm and/or other anti-theft devices
Properly maintain the car in good condition, especially safety devices such as brakes
Purchase or use cars that have higher safety ratings
Don’t lend your car to inexperienced or inconsiderate drivers
Have an emergency kit available, including first aid

Loss Control – Home

Keep your home and surrounding access ways in good repair
Carefully store flammable liquids and dangerous chemicals
Install security alarm and/or other anti-theft devices
Consider an apartment or condo which avoids certain risks of home ownership
Warn visitors about any known hazards in your home
Avoid running a business from your home
Take precautions when your premises includes attractive nuisances such as play sets, trampolines, tree houses and swimming pools
Keep dangerous objects out of the reach of children
Carefully scrutinize activities that may create a bigger exposure to loss such as dangerous hobbies or highly visible activities (volunteer work for organizations that may create extra chances for losses)
If you are involved in high risk hobbies or activities, get the training and/or take precautions to be sure that your participation is as safe and responsible as possible
Take care with heating and electrical devices and systems (such as portable heaters, loads on electrical circuits, etc.)
Keep first aid kit available
Have a fire escape plan, including any needed safety devices (such as escape ladders from second floor exits)

Loss Control – Miscellaneous

Store important papers in a secure, fire-resistance box or even in the corner of a freezer.
Keep all the negatives of photos, so they can be reproduced
Make digital recordings of personal property as documentation of your possessions
Make copies of personal videos or digital property.
Be sure to carefully read contracts or agreements before accepting them
Arrange to exchange and keep important papers and mementos such as copies of videos and photos with friends so they’re easier to access and less expensive than storing in a safety deposit box

Of course the help of an expert is invaluable and your insurance agent is a very helpful source for reviewing any actions you’re considering to reduce your chances of facing a loss. So contact your agent for his or her expert assistance.

Waivers

What’s A Waiver?

With regard to insurance, to “waive” something is to intentionally give up some right or interest. Waivers are frequently used to benefit the person or organization that asks you to sign one. A popular reason for using a waiver is to avoid the legal consequences of sponsoring an activity or event such as the following:

school or community league sports
church related sports groups
intramural sports
sports clinics
field days
bicycle races
hunt clubs
sky-diving classes
motorcycle training
private property owners who provide hunting rights
horse riding
school, church or other association field trips
aerobics/exercise classes

What Happened to Permission Slips?

The use of permission slips has decreased along with the willingness to assume responsibility for a given activity. Permission slips are ineffective when faced with a threat of a lawsuit. Therefore, activity sponsors and participants experienced the following type of forms evolution:

1. Permission slips allowing participation in an activity or event

2. Permission slips including authority to act in emergencies (but the sponsor may still be accountable for its action)

3. Permission slips waiving any right to sue sponsors for emergency actions

4. Waivers barring lawsuits involving accidents arising from both routine and emergency aspects of an activity

5. Waivers barring lawsuits involving accidents arising from all aspects of an activity and including the participant’s agreeing to assume the sponsor’s legal responsibility for the event.

Better Waived Than Sorry?

Sometimes, waivers are like advertising…they’re only effective when you believe in them. For instance, the person signing the waiver may add a comment that he or she has only signed the waiver as a formality, or under duress or protest. Often there are flaws connected with the waiver, such as incorrect or even illegal wording. For instance, a parent is required to sign a waiver for possible injuries to a child but local or state law forbids a parent to waive a minor’s rights. Another example is when state law may hold someone liable for certain acts, regardless of any waiver or agreement. There are other issues that may affect the enforceability of waivers such as:

who is sponsoring the activity (profit or non-profit organization)
the age of the persons being required to waive their rights (minors, adults, seniors)
the nature of the activity (short trip to museum or horseback riding)
the ability of the person waiving their rights to understand their actions
the details surrounding any injury
whether the parties affected by the waiver benefit equally from its use (for instance, a dangerous team-building exercise where an employee is required to participate or face termination)
the qualifications of the staff holding the event

Read Before Waiving

Waivers are sometimes unavoidable, unless you choose to skip the event or activity. Other times, waivers are used when they are unnecessary. Regardless the situation, it is important to take the time to read and understand a waiver before signing. It may even make sense to get competent, legal advice. Perhaps you can’t avoid assuming some risk or giving up your rights, but at the minimum, read before you sign so that you understand any consequences.

Telecommuters and Insurance

If you work from your home for part of your work week and if the situation is an ongoing arrangement with your employer…that’s telecommuting! That is also an opportunity to make special insurance considerations. Consider the following:

Property Considerations

You may have gaps in coverage because of your work arrangement. You may not have the insurance protection you need for your employer’s business property that is kept in your home or your own property that is used to perform your job. This is because residential insurance policies severely restrict or exclude coverage for business property. A further complication is that business property usually consists of high-valued items that are vulnerable to damage and/or to theft. Such property includes fax machines, copiers, computers, pads, smart phones, computer peripherals, GPS, etc.

Liability Considerations

Personal insurance policies that include liability protection typically exclude business-related losses. Further, different policies can be quite broad in interpreting how a loss is connected to “business.” Liability Policies A and B would routinely respond to handling an insured who spilled hot coffee on a guest in his home. What if, instead of being a social guest, the visitor was your employer’s client? Policy A may still offer coverage because it considers the coffee spill to be a common home hazard. Policy B, however, may flat-out exclude the loss because the injured person was in the home for a business reason.

Vehicle Liability

Instead of using your personal vehicle for going to and from work, more of your vehicle use may be related to your job, such as making deliveries, calling on clients or visiting jobsites. Many instances of job related use might be excluded from your personal auto coverage.

Home Accidents

Simple events may be complicated when they occur in the course of performing your job at home. Coverage for injuries suffered while going up the stairs or experiencing a prolonged illness may cause coverage questions for your employer. Individual company or state-mandated coverage for employees may not apply to work-related accidents that occur at home.

Document What You Do

In order to determine your coverage needs, you must clearly identify your exposure to business losses. Document the following:

What routine job duties do you perform in your home?
Are any tasks hazardous?
Who visits your home because of your job (clients, vendors, repair personnel, suppliers, others)? Be Specific.
How often do such persons visit?
Is a certain part of your home dedicated as a work area/office?
What equipment is used in your job? (Is the equipment used only for your job? Who owns each piece of equipment?)

Once you have a good idea of the loss exposures from performing your job at home, you need to discuss your situation with an insurance professional. An insurance pro can help you find additional coverage options as well as help to identify what coverage gaps must be addressed by your employer. While it can be liberating to telecommute, you must make sure that you haven’t given up important protection along with your cubicle or office.

Arbitrations and Appraisals

An insurance policy is a contractual relationship. Paying a premium to an insurance company obligates it to provide coverage. However, disputes often arise over issues such as the following:

Who or what is protected?
How does coverage take place?
When is coverage effective?
How much coverage is provided?
What are the responsibilities for reporting losses?

Under a policy, you and the insurance company are partners. Partners often learn to understand and work with each other quite well. However, sometimes disagreements occur and you should be aware of how you may look to your policy for help.

Arbitration and Appraisal

Two common areas of disagreement are over whether coverage exists or, if there is coverage, how much should be paid for a loss. Arbitration is a tool for addressing the former issue, while the latter is frequently handled by appraisal.

When a claim is rejected, the insurer should offer an explanation for declining coverage. (Of course, if no explanation was given, the policy owner’s first step should be to request this information). The insured and insurer may discuss their viewpoints and, failing to reach either an understanding or a compromise may choose arbitration. This process typically requires each party to:

select their own qualified arbitrator
permit the two arbitrators to select a third arbitrator to act as a judge
allow that agreement among any two of the three parties stands as the decision
each party pays for its arbitrator and share the expense of the judge

The appraisal process is often similar or even identical as both parties usually:

select their own qualified appraiser
permit the two arbitrators to select a third appraiser to act as a judge
allow that agreement among any two of the three parties stands as the decision
each party pays for its appraiser and share the expense of the judge

Items that can have a big impact on either process are any local or state laws, the actual policy wording and the arbitration/appraisal procedure that may vary by locale.

Last Resort

Of course, sometimes arbitration or appraisal fail to settle differences, so legal action may be the last resort. However, many policies also have provisions on lawsuits. Typically an insured is prohibited from filing a suit unless it is done within a certain time period. Further, the insured has to use all the other options for resolving the conflict. While lawsuits are sometimes inevitable, it’s important that insurance consumers be aware of alternatives. It’s even more important to take advantage of discussing your insurance coverage with a qualified insurance professional. Their expertise can be invaluable in dealing with complex insurance situations.

Professional Insurance Designations

The insurance business is complex and full of changes, so it’s very important that persons who are active in the insurance sector maintain interested in continuing education.

The need to keep current is so important that an agent’s pursuit of knowledge is mandatory. Most states require that an agent be licensed in order to sell insurance policies or even to give insurance advice. Different states also require that its licensed agents maintain a long-term commitment to learning. In such states, agents must complete a number of “Continuing Education” hours in order to have their licenses renewed.

Another incentive for continued learning is provided by certain insurance programs. Once a participant qualifies for a designation, continued education is required in order to keep the designation. Of course, many others are personally motivated to keep current in their insurance knowledge; regardless whether a designation results.

The following is a short reference of the more common insurance designations.

Designation

Description

AAI

Accredited Advisor in Insurance

ACLA

Automobile Claim Law Associate

ACSR

Accredited Customer Service Representative

AIAF

Associate in Insurance Accounting and Finance

AIC

Associate In Claims

AIM

Associate In Management

AIS

Associate in Insurance Services

API

Associate in Personal Insurance

ARM

Associate in Risk Management

Associate in Underwriting

CFP

Chartered Financial Planner

ChFC

Chartered Financial Consultant

CIC

Certified Insurance Consultant

CLU

Chartered Life Underwriter

CPCU

Chartered Property Casualty Underwriter

CPIM

Certified Professional Insurance Man

CPIW

Certified Professional Insurance Woman

While a designation MAY indicate a greater level of expertise, the bottom line is experience. Designations are not nearly as important as whether that person helps you with your insurance needs. So talk to your agent, ask plenty of questions and listen to the responses. If the agent has helped you understand something about insurance or has helped you get affordable protection against losses….then you have had contact with an insurance professional.

Give Me An Example

While communication may be achieved faster and more conveniently than ever before; that is no guarantee that we are communicating effectively. Often, the only accomplishment is that we spread confusion and frustration at unprecedented speed.

Key to Effective Communication

Regardless the various methods that are made available to us; one issue about communication remains the same; did the other party understand our message? The type of technology or medium we use for communication is a secondary concern. However, when we make contact with others, whether our message is understood is often taken for granted. This occurs even when the topic is simple. Fortunately, there is an old, actually ancient, technique that we can use to aid our communication efforts…storytelling or examples.

Short stories or examples are often used in training, schools and textbooks, but are rarely used in important business discussions (including insurance). Any person who wants to better understand their policy needs, coverages and exclusions, should just ask for examples. Insurance policies are contracts and, like other legal documents, can be confusing. Often an illustration is more useful than a detailed discussion of policy language. Instead of trying to dissect how one policy part modifies or makes exception to another, ask the speaker if they can demonstrate their point. One source of excellent examples is claims or loss examples. Taking the elements of an actual claim, stripping out any identifying details and using it to portray how a coverage part or exclusion works is a great way to provide information.

A person who can create a good example is someone who has a thorough understanding of his subject and that understanding can be passed along to the listener. The listener often appreciates the work it takes to create examples and this can ease future communication. So take an active role whenever you communicate with an insurance professional and ask: Can you give me an example?

Insurer Defense Obligations

Liability protection, which is part of any typical car or home coverage, has two distinct obligations. First, it is designed to protect you against your legal obligation to pay others because you have hurt them and/or have damaged their property. Second, and equally as important, it defends you against claims or lawsuits. In other words, besides paying for claims or suits, a liability policy also pays for related legal costs and court fees.

Defense costs generally include:

Attorney fees (including cost of legal staff and expenses)
Court costs of the applicable jurisdiction
Costs of filing necessary legal papers
If applicable, costs of expert witnesses
Costs associated with investigation, etc.

Defense Coverage can be offered in two ways. First, it can be provided as part of the insurance policy’s liability limit or second, it could be offered as a separate coverage. You must read your policy carefully because the method has a huge impact on the amount of your insurance protection. Let’s say that Policy A and Policy B both provide liability insurance limits of $100,000; Policy A provides defense coverage as part of the insurance limits while Policy B gives separate protection. Now let’s see what can happen:

Example: Jay Lowcare is sued by his son’s teacher. The teacher came by drop off the son’s homework while the student is missing school due to illness. When the teacher started down the wooden stairs of the Lowcare’s front porch, the second stair broke. The teacher fell to the ground and suffered cuts and compound fractures to his left leg. Medical and rehab costs totaled $95,000 and the defense costs were $18,000. Here’s how each policy would handle the costs:

Expense

Policy A

Policy B

Defense Cost

$18,000

Damages

$95,000

Total Damages

$113,000

Total Paid

$100,000

$113,000

If Jay Lowcare’s protection worked like Policy A, Jay would be personally responsible for paying the remainder of the claim because the defense costs used part of the insurance limits. Policy B’s method of providing coverage offers the most protection. If you’re not sure how your policy handles the cost of your legal defense, talk to an insurance professional and make sure you get the coverage you need.

Alternative Dispute Resolution

Whether an insurance policy covers your home, car, boat, life, airplane, jewelry or business, it is a legal contract that exchanges an insurance company’s obligation to pay for certain losses if the person covered by the policy pays a required premium. Yes, there are other very important parts to an insurance contract, but the preceding states the essence of any insurance policy.

NEED FOR LAWSUIT ALTERNATIVES

When a serious dispute arises, a courtroom is often where issues are resolved. Of course, sometimes filing a lawsuit is unavoidable. But seeking satisfaction in court can be its own problem. Court calendars (dockets) are often backed up so it could take months or even years before a case is heard. Court decisions may be followed by one or more appeals. The legal expense can be staggering, involving court costs, filing fees, attorney costs, research costs, fees for expert witnesses and a host of other expenses. Time and cost considerations are great incentives for finding other methods to resolve disputes.

ALTERNATIVE DISPUTE RESOLUTION

When disagreeing about the amount that should be paid for a loss, there are a couple of popular alternatives to suing your insurance company: mediation and arbitration. Each is a form of Alternative Dispute Resolution (ADR) since they are alternatives to going to court.

Mediation

This process involves two parties meeting to discuss their situation with the help of a mediator. The mediator typically has special training and a legal, financial or similar background. As a disinterested party, the mediator studies information from both sides of an argument. Once familiar with the situation, he arranges a mediation session.

Mediations begin with each party fully explaining their position to the other party and the mediator. It is critical that each party is able to explain their side of the issue without interruption. The facilitator then takes time to discuss each party’s position in private. Afterwards, the mediator shuttles between the parties and, probing and using the information gained, he or she tries to negotiate a settlement. The most important features of mediation are that the process is voluntary and the disputing parties are actively involved in reaching a solution.

Arbitration

This is a method that is frequently required by an insurance policy provision. Under arbitration, the insured and the insurer each select a representative (arbitrator). Once the arbitrators are selected, they agree on another arbitrator who acts as the arbitration judge. The three persons discuss the merits of the situation and, once any two of the three persons agree on a settlement amount, the process ends.

Arbitration differs from mediation in two important respects. First, the disputing parties are bystanders, waiting for a decision to be made by their selected representatives. Second, arbitration is (generally) binding on both parties.

Considering the cost and time involved with lawsuits, it may make sense to seek other options to handle high-stakes disagreements. However, there has been a trend occurring with this method that has raised public concern. Contracts (including insurance policies) are, increasingly, mandating that arbitration is used before litigation. Circumstances may arise where litigation is preferred by an aggrieved party, but the remedy is, effectively, blocked. Alternatives are less desirable if they are requirements rather than options for resolving disputes.

If you need more information, an insurance professional is an excellent source to navigate you toward understanding alternative ways to reach agreements.

Did I Notify My Insurer?

An insurance policy is a promise to protect you against certain types of loss, but it can’t follow-through unless it knows about a loss. Prompt notification is so important that it is a formal policy requirement. A policyholder that fails to meet this obligation could result in a claim being denied.

A policy typically requires you to do the following:

Contact the agent or insurer as quickly as practical – the practical requirement replaced the previous use of “possible,” since some companies unreasonably denied coverage because notification was not instantaneous. The difference between words is important. It allows some flexibility for dealing with circumstances that could affect how quickly you contact your agent or insurer about a loss.

Identify yourself – Perhaps one day your insurer will be able to recognize your voice over the phone and immediately pull up your file. Until then, be prepared to at least tell your insurer your full name (or, if different, the name the insurance policy is under) and the policy number.

Give adequate details – What, When Where, Why and How. It is important that the insurer has enough information to take proper action. This information allows an insurer to open a claim file, assign the loss to a claims person and begin investigation of your loss.

Provide copies of loss-related materials to the insurer – You should not guess about whether a legal notice or request to be paid for damages is important, even when an actual lawsuit has yet to be filed. Send a copy of the information to your insurer and let them decide.

Prompt notification helps everyone

Complete and quick communication about losses gives you the best chance to get needed coverage and gives your insurer an opportunity to handle a possible claim efficiently. It also allows the insurer to control issues that could let lawsuits gets out of control, such as the ability to offer payment for medical expenses or to contact and question witnesses.

Don’t hesitate! Contact your agent or insurer and get your loss handled.

Insurance, War and Terrorism

Terrorism and military activity continues to be a major concern to us all; even affecting the, normally, mundane world of insurance. It would be natural for you to wonder about items such as:

How do the events affect my insurance protection?
Are war and terrorist acts the same?
Exactly what is excluded by my policies?
Do I have to buy special coverage to protect my belongings?

It is understandable to be concerned and confused over the above issues, especially since everyone is being inundated with news and advice.

Personal lines insurance (any coverage that protects personal rather than business property) is more standardized than commercial insurance. Because of this higher level of standardization, the coverage approaches used in policies for cars, homes, and personal liability are similar.

Most policies prohibit coverage for causes of loss that are considered “uninsurable.” Not surprisingly, coverage for war is one cause of loss that is excluded. Typically, auto and homeowner policy wording not only excludes war, but any military actions similar to war such as rebellions, large-scale civil disturbances, and revolutions. Further, coverage is excluded regardless whether the government has formally declared a state of war. On the other hand, acts of terrorism are distinct from war and, as we have learned to our sorrow, involve individuals committing acts against other individuals rather than against governments or military personnel. At one time, losses caused by such acts were covered, but that was when their likelihood of occurring was rare. Since the danger of terrorist acts has risen, more policies have begun to exclude this cause of loss. However, it is always in your best interest to look at exactly what is stated in your policies. It would also be helpful to contact an insurance professional to discuss any of your concerns in enough detail so that you understand your situation and your coverage needs.

Insurance Perils – Part 1

If you have ever read the insurance policy for your home or rental property, you probably ran head-first into the terms “hazard,” “peril,” or “cause of loss.” These are events that are covered by your insurance. This three-part article explains these terms.

Fire–Fire has been defined by the courts as “combustion sufficient enough to produce a spark, flame or glow.” By definition, a fire is not smoke or charring. A fire must produce a spark, flame or glow. And not all fires are covered under the fire peril. Over the years, the courts have distinguished between “friendly” and “hostile” fire. A friendly fire is one that burns where it was intended to burn: a flame on a gas stove; a fire in a fireplace; fire in an outdoor grill.

A hostile fire is one that burns where it was not intended to burn: the kitchen drapes; the rug by the fireplace; a tree near the outdoor grill. Only direct damage caused by hostile fire (including smoke from a hostile fire) is covered by the fire peril.

Lightning–Lightning is “naturally generated electricity from the atmosphere.” Damage covered by the lightning peril may be the result of lightning itself or the result of a fire caused by the lightning.

With regard to lightning, there is rarely a coverage problem for direct strikes. The other common cause of lightning loss is the surge of electricity, typically caused by lightning striking power company equipment. Appliances in a house can be damaged by the electrical surge. The cause must be established for coverage to apply. A surge from malfunction of power company equipment, or a short circuit, would not qualify.

Explosion–In basic or stripped-down policies, explosion refers to any explosion that occurs within a structure that is covered by a given policy. However, several types of explosive events are usually excluded such as:

bursting of water pipes
electrical arcing
explosions of steam boilers or pipes owned, leased or operated by the insured
rupture or bursting of pressure relief devices

In more comprehensive polices, explosion also applies to events that originate externally.

Windstorm–The peril of windstorm involves damage caused by direct action of the wind, including high winds, cyclones, tornadoes and hurricanes. Windstorm coverage primarily covers wind damage to a building’s exterior but will also cover interior damage if the wind breaches the exterior (causes a hole or opening in a wall or roof).

Winds must reach sufficient velocity to have caused direct damage at more than one location to establish a “windstorm” loss. However, leakage through an aging roof during heavy rain is not a basis for a windstorm claim. The windstorm peril does not cover loss to the following property when located outside of the insured building: awnings, signs, radio or television antennas or aerials including wiring, masts or towers; canoes and rowboats; lawns, plants, shrubs or trees.

Insurance Perils – Part 2

This is part two of a three-part discussion on different causes of loss.

Hail–Hail damage is just that: damage caused by the direct action of hail to insured property. As with windstorm, the hail or some other covered peril must cause damage to the outside of the insured dwelling allowing hail to enter the premises in order for interior hail damage to be covered. As a result, if a window were left open, allowing hail to enter a building, that damage would not be covered.

Similarly, the hail peril does not cover loss to awnings, signs, radio or television antennas or aerials including wiring, masts or towers; canoes and rowboats; lawns, plants, shrubs or trees when located outside of the insured building.

Riot or Civil Commotion–Riot usually refers to a gathering of three or more people that results in the use of force or violence against individuals or property. Damage caused to the insured property due to riot is covered under this peril. Coverage includes direct loss caused by striking employees whether a riot occurs or not. Civil commotion can be defined as an uprising or disturbance by a large number of people. As with riot, damage caused to the insured property due to such an uprising would be covered under this peril.

Bouvier’s Law Dictionary summarizes five necessary elements of a riot: At least three persons must be involved; there must be a common purpose; there must be actual inception or execution of that purpose; there must be an attempt to help one another or to cooperate by force if necessary; there must be display of force or violence in such manner as to alarm a person of reasonable courage.

There may be no valid distinction between riot and civil commotion. “Civil commotion” has been described in courtrooms as “an uprising among a mass of people which occasions a serious and prolonged disturbance and an infraction of civil order, not attaining the status of war or armed insurrection. It requires the wild or irregular action of many persons assembled together.

Aircraft–The aircraft peril provides coverage from damage caused by aircraft, including self-propelled missiles and spacecraft. In a recent development, this cause of loss would also apply to unmanned air vehicles (drones).

Webster’s New World Dictionary of the American Language defines “aircraft” as “any machine or machines for flying, whether heavier or lighter than air; airplane, dirigible, balloon, helicopter, etc.”

This peril would apply to damage caused by the falling of an aircraft or any of its parts, on a covered dwelling and its contents.

Vehicles–Damage caused by direct physical damage with “vehicles” is covered by the vehicles peril. Damage caused by objects thrown by vehicles (such as stones, etc.) is covered as well. The vehicles peril does not include loss to a fence, driveway or walk caused by a vehicle owned or operated by the insured or a resident of the described location.

Smoke–Refers to “sudden and accidental damage from smoke.” Any sudden and accidental damage from smoke caused from any source except smoke from agricultural smudging or industrial operations would be covered. The terminology used makes clear that the damage must occur over a short period of time. A prime source of claims is furnace malfunction that results in the backup and blowing of smoke and grit into rooms through a central heating system.

Agricultural smudging would include damage from burn-off of growing materials on or near the covered premises and use of smudge pots to protect growing crops and trees from frost. Damage from smoke associated with businesses would include that caused by the “blowing out” of smokestacks in the course of periodic cleaning. Excluded damage would also include damage caused by smoke from malfunctioning industrial heating and processing equipment.

Volcanic Eruption–Damage caused to insured property by the eruption of a volcano is covered under the Dwelling Policy Program; however, loss caused by earthquake, land shock waves or tremors is excluded.

This peril is designed to address the damage caused by the eruption of a volcano, including the ensuing lava flow and airborne particles. In most policies, one or more volcanic eruptions that occur within a 72-hour period are considered to be a single covered event.

Insurance Perils – Part 3

This is part three of a three-part discussion on different causes of loss.

Vandalism and Malicious Mischief–Vandalism and malicious mischief are generally cited as a single peril meaning willful or malicious physical injury to or destruction of property. “Vandalism” means willful destruction or defacement of things of beauty. It implies general hostility to nice things and satisfaction from their destruction.

“Malicious mischief” implies damage to property motivated by hatred or spite. It is not associated with beautiful things, but rather with utilitarian things such as machinery and business buildings and their contents. Acts leading to this kind of destruction are premeditated and include those arising from resentment and ill will during labor disputes.

Accidental damage is not covered under the “vandalism” peril. Coverage applies only when the damage is intentional. The vandalism and malicious mischief peril does not include loss to property on the “residence premises” if the dwelling has been vacant for more than a number of consecutive days immediately before the loss (the period may vary by policy). A dwelling being constructed is not considered vacant. Furthermore, the vandalism or malicious mischief peril does not include loss by pilferage, theft, burglary or larceny.

Damage by Burglars–Damage caused by burglars refers to the damage caused during a break-in and not to the actual stolen property. For example, if two burly burglars attempted to remove a grand piano from the insured residence, the actual damage to the walls, floors and doorways caused by the piano being moved would be covered. The actual loss of the piano would not. Typically, there is no coverage for loss to property in a building that has been vacant for more than (a specified number) of days immediately before the loss.

Falling Objects–This peril covers damage to the exterior of the insured premises and its contents if the falling object first damages the roof or exterior wall. Damage caused by any fa