The Meter is Running
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Do your insurance policies really cover everything?
AUTHORMichael Rogoff, AKAM
The umbrella deal. The umbrella insurance policy provides excess coverage over the other policies. For instance, a standard Directors and Officers policy with $1 million in coverage could have an umbrella policy anywhere from $25 million up to $200 million. If your D&O policy has a $1 million limit and you have a $100 million umbrella limit, you would technically have $101 million in coverage. And if you had a claim that actually went that high, the first million would be picked up by the primary policy, and then the additional excess above the million up to a $101 million would be covered by the umbrella policy.
Calling it quits. There was a time when a $1 million or $2 million claim would be a lot. Now, though, we are starting to hear about $10 million claims — and up. Every building used to have $100 or $200 million in umbrella coverage because it only cost a few thousand dollars. And it was kind of “Why not, let’s have this policy since it’s so cheap.” As the carriers started to pay out these very large claims, they decided that this isn’t a business they really wanted to be in anymore because the claim payouts were starting to exceed the minimum amount in premiums that they were collecting.
What’s next. Water-damage claims are the most common types of claims, and they fall under the property policy. If there are a lot of leaks or water-damage claims, it could be a deterrent for a carrier to even write the policy. Or it can increase the premium on the policy or the deductible. We’ve seen water-damage deductibles increase from a standard $5,000 or $10,000 to as much as $100,000 if a building has a history of a lot of leaks.
Worthy of your time. There are always potential mitigation steps and plans that a building can make. Just as a matter of course, even if we didn’t have rising insurance costs, all buildings should have a leak mitigation plan. If it’s an interior leak, do you know where the shutoff valves are in the building? Are you doing proper maintenance and preventive maintenance to try to reduce leaks? The insurance companies will look at these types of mitigation plans, and they can be helpful. But most importantly, what the insurance companies look at is your loss runs — and how much has been paid out in losses over the last five years.