IRMI Update—Issue #5
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
November 14, 2000
In This Issue
Colleague,
Fourteen years does not a veteran make.
That was my conclusion following a recent conversation with a long time industry
veteran. We were discussing the industry restructuring, layoffs, and reduced
emphasis on training and education of the 1990s and how they are affecting insurers'
and agents'/brokers' abilities to operate in a firming market. He commented
that the industry is heavily populated with people who have been in the business
for less than 15 years, and they have never experienced a hard market. While
14 years is quite a bit of experience in most businesses, it does not overlap
a down cycle in the insurance marketplace. Even the most capable of these people
will encounter a severe learning curve if the current market trend accelerates.
Many industry observers expressed concern that insurers were shooting themselves
in the foot when they restructured and cut training programs in the last decade.
Are the prophecies coming true? Will past actions hamper them in their attempts
to invoke underwriting and pricing discipline in the coming months? What about
agents/brokers? Will their staffs be ready to make it easy for underwriters
to give their best prices and terms to the agent's/broker's clients? And don't
let me leave out risk managers. Are they ready for the trials, tribulations,
and trauma of a hard market?
I don't think there is any question that the effectiveness of many insurers
and agents/brokers will be impeded by a lack of people with hard market experience—particularly
if a genuinely hard market develops (we aren't there now). What can be done
to circumvent this? Perhaps a hard market boot camp where veterans share the
tips and techniques that worked for them in 1984 and 1985 will help. However,
it will take some time to effectively implement an accelerated training program
in hard market basics. Those who have inadequately trained themselves or their
associates will suffer. The questions are, "Who will pay?" and "How much?"
Do you agree? What should individuals and companies do about this? [To see
what readers had to say in response, go to IRMI
Update #6.]
Have a great day!
Jack
Jack P. Gibson
President
IRMI
Last issue of IRMI Update, we asked you to vote on how often you wanted to
receive the e-zine. After 220 votes, the results were:
Weekly—30.9% Twice Monthly—43.6% Monthly—25.5%
So, beginning in December, shorter versions of IRMI Update will be published
twice monthly, on or about the first and fifteenth of the month. Thanks for
responding to our poll and look for other ways to express your opinion in future
editions of IRMI Update!
Get Business Income Coverage for Damage to Leased
Equipment. Business Income Coverage under some property forms is triggered
by a loss to covered property insured under the policy.
With the rapid advances in technology (Computers, Mainframes, Telephone Switches,
etc.) taking place today, businesses must continuously upgrade equipment to
keep up to date with the latest innovation. Therefore, instead of buying equipment
that could rapidly become obsolete, the trend now is to lease this equipment.
The lease agreement often requires the lessor to insure the equipment, so the
insured (lessee) need not add it to its property schedule.
What happens when the insured suffers a business income loss and the property
or equipment damaged was not listed in the policy or part of the blanket limit
of coverage? Most likely the insurer's response would be, "No coverage." The
simple solution is to have the insurer add wording to the policy by endorsement
saying essentially the following:
It is understood and agreed that the Business Income Coverage provided
under this policy will be applicable to all physical losses to property
and/or equipment sustained by the Insured whether such property and/or equipment
is insured under this policy or under some other form of insurance provided
by the owner or supplier of said property and/or equipment
This endorsement wording will have no effect on the insured's obligation
to insure all of its property and equipment under its own policy, but will prevent
the insurer from denying a business interruption claim simply because the direct
damage insurance on the insured's equipment was provided by another party.
By: John Darlington
HRH Baltimore
Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send
us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. We'll
acknowledge your contribution as we did for John.
We add new Expert Commentary to IRMI.com every week. There are now 83 articles
on IRMI.com, and many more are in production. Below you'll find summaries of
some recent additions with links to the articles.
-
Colleges and Universities
Environmental Liability—Environmental exposures can pose a significant
risk to educational institutions and the students, faculty, and members
of the public that come in, on, and through campuses everyday. This article
examines the exposures and ways to deal with them.
-
Substance Abuse
in the Construction Industry—Drug use is a pervasive problem
in America, particularly in the construction industry. Learn about detection,
testing, prevention, and employee assisted programs in this informative
article.
-
Enterprise Risk—What's
Up with That?—Enterprise risk management (ERM) represents a very
exciting opportunity for insurers to create new markets for their products,
if they can handle the challenging new exposures. This article explains
ERM and examines its relationship with insurance.
-
The Mexican Insurance
Market—With a new government, an increasingly stable and growing
economy, and about 100 million inhabitants, Mexico is truly a market of
significance. Learn about the Mexican Insurance market and the different
coverage concepts facing those in—and those contemplating entering—it.
-
Adventures in Contract
Wording: The Effect of Ambiguous Reinsurance Contract Language—This
article examines some of the problems that can occur because of imprecise
reinsurance contract language and what can be done to avoid this scenario.
-
"Physical Damage" in
the First-Party Property Policy—A New Definition Coming?—Does
"physical damage" now include "loss of use and functionality"? A recent
federal court ruled that it does. Read about the decision and learn how
it could give new meaning to all aspects of property insurance.
-
The Historic Insurance
Audit: Investigating External Sources—When reconstructing a company's
historic insurance portfolio, it is often necessary to look outside the
firm's internal records. This article explains how to conduct such a search.
CPCUs Consumed by Technology—The
CPCU Society's 56th Annual Meeting confirms that the technology transformation
has hit the insurance industry. Learn what today's insurance experts had to
say about tomorrow's state of technology, its interrelationship with society,
the resulting risks, and the changing roles of insurance agents and brokers.
The speakers' handouts from the 20th IRMI Construction Risk Conference are
available for downloading and printing on IRMI.com at no charge! The Conference
featured presentations on a myriad of construction insurance, risk management
and bonding topics.
IRMI will be increasing the price of most reference services and newsletters
in 2001. If you have been thinking about adding a title to your library, you
can beat the increase by subscribing now. Check out our complete catalog in
the Products & Services section
of IRMI.com.
New—IRMI Insurance
Checklists 2001—The fallout in a firming market is usually less coverage
with increased costs, and coverage reductions can go undetected until it's too
late. IRMI Insurance Checklists 2001 has
been assembled to assist you in developing insurance programs to respond to
the unique loss exposures of any business. It contains detailed coverage checklists
for 49 common commercial lines types. In addition to the publication, you get
Internet access to files containing the various checklists for use in a word
processor.
We received 68 responses to Jack Gibson's editorial in IRMI Update #4. He had expressed the opinion
that U.S. agents and brokers should review contracts to analyze the risk and
insurance implications for their clients whether or not it increased their E&O
exposures. Your responses were overwhelmingly in support of his opinion.
However, a few of you did not agree. The main concern is that the agent may
be practicing law. Obviously, agents and brokers must be very careful as to
how they couch the advice they give clients to avoid even the appearance of
giving legal opinions. As long as they do so, they should be able to advise
their clients on the insurance and risk management implications of contracts
as business advisors.
The following is a selection of unedited excerpts from the responses. While
we have not displayed the names of the commentators, we have included an occupational
descriptor to give you his or her perspective.
- I expect the broker to be giving advice and recommendations in the area
of risk management. Otherwise what are we paying them for?
—Corporate Risk Financing Manager
- I think it is the unauthorized practice of law and would subject the
agent offering such advice to criminal prosecution and civil penalties in
addition to increasing the agent's exposure to malpractice suits. Unless
the agent is licensed to practice law, he or she must not give legal advice
about the legal import of any contract.
—Attorney
- As the provider of E&O insurance to over 1,000 [state agent's association]
members, I agree with you 100%. To succeed and grow, agents must look for
ways to add value to their relationship with their customers. Increased
E&O exposures go along with increased service and increased knowledge. But
that's why we're here.
—Agent's E&O Insurance Market
Representative
- The so-called value-added service, from my perspective, is an essential
element of the sales process. The exposure to lawsuits is greater for providing
inadequate or improper coverage than it is to hiding your head in the sand.
Moreover, if you do not provide the analysis, someone else will, and you
will lose the business.
—Attorney
- The attorney was correct in pointing out the fact that we are increasing
our professional liability exposure. But, he fails to mention that, by using
proper loss control techniques, such as disclaimers on your coverage opinions,
you can greatly reduce your exposure to a professional liability loss.
—Agent/Broker
- It's a fine line from contract review with advice to a client and Unauthorized
Practice of Law... This isn't rocket science, but it's no wonder you were
cautioned against it.
—Paralegal
- The CPCU Society, ARM designation, and IRMI have provided extensive
analysis and valuable information in the matter of risk transfer without
practicing law. A qualifier that risk management, and not legal advice,
is being offered, and the suggestion that an attorney review advice should
be made.
—Agent/Broker
- I agree with you wholeheartedly. If we follow the attorneys' advice,
we do nothing. If we do nothing, we've no way to separate ourselves from
the hoards of agencies and brokerages that currently do nothing. It sure
would be easy to do nothing, but in the long run, the cost in lost business
to those that provide these services would be too great.
—Agent/Broker
- Failure to not properly evaluate a risk and their exposures can not
only lead to litigation, but also opens your book of business to those professionals
who see this an opportunity, not a liability. It all comes back to the old
saying: Knowledge is power!
—Agent/Broker
- Attorneys just don't want to see non-attorneys "practicing" law.
—Director of Environmental
& Safety Affairs
- As an attorney, I feel the tug of the inevitable temptation to assume
that only attorneys can review contracts or advise on risks. But a knowledgeable
risk manager or insurance broker has a wealth of experience and can provide
invaluable advice. It would be a shame to waste it.
—Attorney
- Risk management is risk management. Sales are sales. I know some people
who are capable of wearing both hats, and they're good at it. But I would
never underwrite their E&O exposure.
—Consultant
- Guys like me with 40+ years as an agent/broker, raised on the importance
of knowing the technical aspects of what we provide our clients, are getting
to be a vanishing breed ... My view is that if you are going to be sued
either way, you may as well do the best job for your client that you can
and take your chances. The inner-satisfaction that you receive from providing
your clients with your best efforts is what makes being an insurance and
risk management professional worthwhile.
—Agent/Broker
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