What is Comprehensive Insurance?

Posted on May 22, 2019May 22, 2019 by Brad Smith

Deer, Hail, Vandalism and all other than collision claims can be covered with comprehensive coverage added to your KY car Policy. — Comp Claim

There are two coverages that protect your vehicle if it is damaged. Collison coverage covers accidents that occur when your vehicle collides with another vehicle or object such as a fence, mailbox or tree. Comprehensive insurance covers your vehicle when the damages result from other than collision. Comprehensive coverage may be referred to as other than collision coverage.

Examples of Comprehensive Coverage

If your auto insurance has comprehensive insurance then you will be protected in the event your car is stolen or vandalized. Comprehensive or Comp coverage will also protect you from Mother Nature. Damages caused by wind or hail storms are covered by Comp. The coverage will also protect you from fire, flood and wildlife, such as deer.

Comprehensive is not a standard feature

While not included with a standard car insurance policy, the coverage can be included. While many drivers choose to include this coverage, adding it should be a decision for the insured. We advise clients to consider the cost of the coverage relative to the value of the car before decided to add or waive the option.

Need help finding a good insurance agent?

Posted on November 9, 2018October 30, 2018 by Brad Smith

If you’re looking for a great insurance agent, it may be wise to take a step back. Before starting your search and ask yourself, what is an Insurance agent?

Most consumers consider anyone that sells insurance to be an agent. To some degree that is true. But if you look a little closer, you will see that there is a clear distinction. Insurance sales professionals fall into two defined buckets. Insurance salespeople are either agents or brokers. Understanding the differences should be the starting point for insurance consumers.

Classifying agents is based on their relationship to the insurance company. In the strictest sense, to be considered an insurance agent, one must be an employee of the company. These individuals are also referred to as captive agents or exclusive agents. As employees of the insurance company, agents tend to have increased authority.

For the typical insurance consumers, the lines between agents and brokers aren’t clear. Today we often refer to insurance brokers as independent insurance agents. This group represents insurance companies per specific contractual guidelines. As a result, the employee agent is able to write new business with less red tape than the broker.

The term non-captive agent is often used when referring to insurance brokers. Relative to his captive counterpart, the broker has options.

But, beware. Brokers come in varying degrees of captivity. Some derive a significant amount of their income from one insurance company. In some cases, this occurs because it is a requirement of the insurance company. In these cases, it is not uncommon to see 70 to 80% of the non-captive agents premium with one company. The numbers might go even higher. Some carriers demand exclusivity. If their company has a product that will fit, then the agent cannot show anything else. Under these circumstances, the agent has more in common with the captive agent than the non-captive.

Other non-captive agents must meet specific goals as required by the carrier. Annual new business requirements, yearly predefined premium targets and more. While a step in the right direction, it will still be challenging to provide trusted advise.

Brokers, independent agents, and non-captive agents, each have the potential to offer options. Regardless of what they are called finding a good insurance agent for you is a personal decision. For me the answer is simple. I seek the services of a trusted advisor that can present me with multiple options. While some will laud the benefits of free markets, I insist that it is the number of options and not free markets that truly protect consumers.

Insurance Broker

Posted on November 5, 2018October 30, 2018 by Brad Smith

Insurance sales professionals come in many forms. They go by various names and have different strengths and weaknesses. Agents can be classified by their relationship with the insurance company, the customer or both.

The term insurance agent is used widely by the public. But, the term agent is most often used when referring to an employee of the insurance company.

Insurance broker, independent agent and non-captive insurance agent are often used interchangeably. Each of these classifications describes insurance sales professionals that represent multiple companies. The level of autonomy varies significantly between agencies. The same is true regarding the options that they can present to clients.

Logically, more options are better. But your search for a top insurance agent needs to go a few steps further. In your quest to find the best insurance agent for you, consider the benefits associated with an unbiased agent. To reveal an insurance agents biases, it might be wise to understand how much of the agency’s premium is placed with their top insurance company. How about the top three?

Insurance Agent

Posted on October 30, 2018April 29, 2019 by Brad Smith

Insurance professionals come in many forms. They go by various names and have different strengths and weaknesses. Agents can be classified by their relationships with the insurance company, the customer or both.

The public uses the term insurance agent to describe anyone that sells insurance. While this is generally accepted consumers should have a basic understanding of the players.

Individuals that sell insurance are generally classified into one of two categories. Agents and Brokers:

Agents are employees of the insurance company. They represent only one carrier.

Insurance Brokers also called Independent Agents, are third-party providers. They represent a number of insurance companies but are not an employee of any.

Insurance agents are sometimes referred to as exclusive agents or captive agents. These terms stem from the fact that the agents are employees of the insurance company. As a result, they can only sell the products of their employer.

With limited options, captive agents can find themselves at a disadvantage. While independent agents have access to multiple insurance markets, however, a positive to be captive. As employees of the insurance company, captive or exclusive agents have more authority.

If you are searching for the best insurance agent for your needs be sure to consider the benefits associated with each type. Or even better, take a little extra time and try both a captive and an independent agent.

Indemnity

Posted on September 29, 2018 by Brad Smith

Indemnity occurs when an individual or entity receives reimbursement and is made whole for a loss. Insurance policies provide indemnity to the insured when the insurance company pays claims on losses that are directly related to a covered cause of loss.

Most forms of insurance are consider a contract of indemnification or contract of indemnity. A contract of indemnity requires that an insured be made whole in the event of a loss. The contract further states that the insured may only be made whole. Better said, the insured cannot profit from the contract of indemnity.

The no profit clause in the contract of indemnity is critical to insurance companies and insureds as well. Without it, individuals could legal receive economic benefits from an insured loss. This would expose insurance companies to adverse selection, higher claims, which would result in higher premiums for consumers.

What is insurance? Part 2 of 2

Posted on September 20, 2018September 19, 2018 by Brad Smith

What is insurance?

Practice Risk Avoidance at your own risk

Individuals and business also practice a direct from risk avoidance. Suppose you sold your car and committed to using public transportation. Without a car, you have successfully eliminated your primary automobile liability exposure. And without the risk, you are no longer required to carry the state-mandated insurance.

Businesses might opt to outsource specific functions allowing them to eliminate multiple risks ranging from property to casualty to workers Risk Avoidance at your own risk compensation. Altering production methods, implementing automation, and revising policies and procedures are just a few avenues where businesses can eliminate specific risk.

Risk avoidance is not a practical solution for all exposures, but it can be a very cost-effective solution when implemented correctly. Those practicing this method must realize that risk avoidance may not be as simple as it appears. You may have noticed in the auto liability example above, the phrase “primary exposure.” This suggests that there continues to be potential exposure even after the sale of the vehicle.

You don’t have to own a vehicle to drive. People rent cars all the time. While it is hard to imagine a scenario where you could rent a vehicle without liability insurance if you did you would be exposed. A more likely scenario would be your exposure in the event you borrowed a friend’s car. Coverage stays with the auto, so as long as you had permission from your friend to drive their vehicle, the policy covering the car would protect you.

Borrower Beware! What auto liability limits does your friend have? Did you ask? Does it matter? Let’s assume that the vehicle has the minimum coverages allowed by your state. For us, that would be $25,000 for bodily injury for any one person, capped at $50,000 if multiple individuals are injured and $25,000 for property damage.

As the driver of the vehicle, you are potentially liable for damages that exceed the vehicles policy limits. In this scenario, the vehicle coverages are limited, placing you in a position with significant exposure. In your past, this wasn’t an issue. When you owned an auto and had insurance, your policy extended liability protection to you even when it wasn’t your car. Your decision to practice risk avoidance has triggered additional and perhaps unforeseen exposures.

There is an old saying, “You’re picking up pennies in front of a train,” or more simply said, you’re taking too much risk for only a modest reward. If you practice risk avoidance, you better know the train schedule.

Risk Reduction; Modifying exposures for everyone’s benefit

Reduce risk What is risk reduction role in risk management? Unlike the other three methods, risk reduction is not a stand-alone method. It is more akin to a complimenting strategy or modification. Examples of risk reduction would be businesses utilizing sprinklers, keeping parking lots and sidewalk free from ice and snow, or preemptively addressing employee actions that put an organization at risk. Individuals performing regular maintenance on their home or auto are practicing risk reduction. Installing a security system or erecting a fence with a locked entry gate around a pool are also examples of individuals utilizing risk reduction techniques.

When combing risk reduction methods with risk retention, the results directly benefit the individual or business. These actions may have one of two outcomes. The installation of a sprinkler system is an action that results in lessening the loss. Steps taken to reduce risk can also lower the probability of loss. The previously mention action to address snow and ice removal would most likely reduce the potential for a loss.

Don’t Fear the Loss Control Man!

The role of Loss Control can be confusing. Insurance companies can be viewed as risk management consultants and as risk transfer solutions. However, a fine line exists between providing beneficial risk management counseling and becoming a deterrent to business. The action of an insurance companies loss control efforts can easily gauge the company’s success in balancing the two roles. When this group with providing risk reductions techniques for the insured they become a catalyst for change that becomes genuinely value added for both the insured and the insurer. Loss Control units aimed at creating awareness of potential risk reduction opportunities will have a positive financial impact on the insurance company, which should, in turn, have a positive effect on the insured’s cost of risk management.

When you buy an insurance policy, you are purchasing much more than a risk transfer agreement. The insurance policy today has evolved to incorporate many aspects of risk sharing, risk retention and indirectly risk avoidance. The final method of risk management, risk reduction also comes into play. Acting primarily as an incentive, or a chance to reduce the overall cost insurance.

So what is insurance? Today, insurance is a contract/relationship between an insured and an insurer where the insurer utilizes modern risk management tools and encourages proactive steps by the insured which will lead to an increasingly efficient process of indemnifying the insured against specified peril(s).

Access Part 1 of this series

What is insurance?

Posted on September 19, 2018September 20, 2018 by Brad Smith

Insurance

Some people think that insurance is risk management. But industry professionals will argue that insurance coverage is only one component of the risk management process. What’s the difference between the two? Risk management is a discipline used to identify, evaluate and address specific risks. A risk management plan will utilize one or more of the four risk management methods.

The Four Risk Management Methods

Risk Avoidance Risk elimination

Risk Reduction Reduce

Risk Sharing Transfer, Insurance

Risk Retention Do Nothing, Self-Insure

So what is Insurance?

If insurance isn’t risk management, then what is it? Insurance is commonly considered to be a mechanism for risk transfer. If you look up the word insurance, you are apt to find the words “transfer of risk” or “risk sharing.” So insurance is risk sharing or risk transfer? Yes. But it’s more.

Insurance is a mechanism that can be used to transfer risk from one party to another. In exchange for a premium, insurance companies will agree to provide indemnification. Indemnification, or the protection against loss, can be purchased to mitigate a large number of exposures. Insurance products exist to transfer both property and liability risks.

Insurance Today

“Ah, the joys of homeownership,” words muttered regularly by homeowners. Homes generate problems. Many associated with either property or casualty exposures. Typically these risks are transferred to an insurance company through a homeowner’s policy. In a pure form of risk transfer, the insurance company would make the insured whole in the event of a specified loss. But most of us don’t transfer all the risk. The amount we recoup will be the value lost less a deductible.

Most property policies have a built-in risk retention mechanism, the deductible. On the surface, this may seem to be negative. But before making these assumptions consider why it’s there. The deductible is in fact risk retention. By retaining the first $500, $1,000 or more, the insured can significantly lower the cost of insurance. Without deductibles, insurers would become inundated by the number of small claims. Smaller claims would also adversely impact administrative cost markedly. Finally, without a deductible, insurance company’s exposure to fraudulent claims would likely skyrocket. Without a deductible, insurers would face mounting costs that could only be offset by raising premiums.

At first blush, deductibles appear to work to the benefit of the insurance companies. Deductibles no doubt benefit insurance companies. But after considering the implications, it would seem that consumers are reaping the most value.

Today’s insurance contains a risk retention component

When insurance companies avoid risk it benefits the company and the consumer

You may have learned from experience that insurance companies will not provide coverage in some instances. Insurance companies don’t want all risks. By insuring only the risk that they prefer, they are practicing risk avoidance. Trampolines, pit bulls, fireplaces, and log homes are good examples of risk that many insurance companies avoid.

Insurance companies underwriting higher risk exposures are expected to have increased losses. What does this mean for the insured? That’s hard to say. It doesn’t mean that you can’t get insurance. You most likely can. It does mean that you will have fewer options and in most cases, reduced competition leads to higher costs.

Rejecting certain risk helps insurance companies, but how does it help the consumer

The practice of risk avoidance improves insurance companies underwriting results. In theory, insurance companies that can successfully manage their risk are more likely to have higher profitability and faster capital growth. As the company’s capital grows, so does the need to write additional insurance. If enough insurance companies are experiencing the same results, competition will increase. The increased appetite for risk will ultimately impact the insured, by putting downward pressure on premiums.

Trickle-down risk management

The benefits from risk avoidance can be direct or indirect. The risk avoidance techniques used by insurance companies have both a direct and indirect effect. As mentioned, the direct actions put downward pressure on the cost of insurance. These practices can passively encourage consumers to avoid unacceptable risks. Over time, sound risk management practices trickle-down which further reduce risk management costs.

Access part 2 of this 2 part series which will be published on 9/20/18

What is an Insurable Interest?

Posted on September 17, 2018 by Brad Smith

Most of us buy insurance. We buy insurance for our homes, autos and even our lives. But have you ever consider what would happen if you tried to buy insurance on the building owned by the company you worked for? Any answer other than no will raise red flags.

First off, you most likely can’t buy insurance on the building. You don’t own it. Yes there are instances where you can buy insurance on a building you don’t own. The most common being property you rent where the lease specifically cause for you, the tenant, to provide property coverage.

Second, why do you want coverage for the building? Are you concerned that it will burn or blow down? What will you do with the proceeds? You’re not reasonable for paying off the mortgage.

Before you can buy insurance you should be required to prove that you have an insurable interest. Otherwise the policy will not be valid.

Insurance is based in part, on the Principle of Indemnity, a theory that the insured should be may whole. The principle of indemnity has two requirements:

The insurance company must make the insure whole or restore the lost financial value

The insured, as a result of a loss, cannot be rewarded or generate a profit

If not for bullet two above, abusive practices would occur that would drive up the cost of insurance. Along these same lines the insurable interest requirement comes into play. If an insured had no interest they would also have no financial exposure or loss. Any insurance payments received would create a windfall for the insured. That would then be in direct conflict to the above. This would ultimately encourage unethical behaviors. The end result would be an increase in the cost of insurance for all.

Understanding what is an Insurable Interest

Can you insure a car that is not title to you? In most cases the answer would be no. But there are times when you can. If you lease a car, the title of the car is not in your name. Even though you don’t own it you can insure it. Your lease agreement places the loss of value (other than normal wear and tear) on your shoulders. The agreement most likely goes a step further, by requiring you to maintain insurance for the term of the lease. Bottom-line here is that you to have exposure to a financial loss in the event the vehicle is damaged. Thus giving you, the lessee, an insurable interest in the vehicle.

As you can see, property ownership is not a required to have an insurable interest. Consider Liability Insurance or Workers Compensation Insurance. Both forms of insurance protect from exposures where there is no property. In both cases an insurable interest exists that are not tied to property of the insured. However, both coverages are in place so that the insured can take ownership of their actions. When actions of an insured lead to loss or damage to others they trigger a financial exposure. This in turn creates an insurable interest.

AAA-American Academy of Actuaries

Posted on August 31, 2018July 17, 2018 by Brad Smith

Key Insurance Words and Phrases

The American Academy of Actuaries is a professional association that creates professional standards for credentialed actuaries via several organizations. The group also works with US policymakers by providing insights and actuarial expertise on risk and financial security issues.

To learn more visit their website at:

http://www.actuary.org/

Tackling Insurance Terminology: “What is Libel?”

Posted on August 30, 2018September 20, 2018 by Brad Smith

August 30, 2018

Libel

Defaming another via some permanent source. Damaging the reputation of an individual or entity by publishing false statements. Unlike slander which is considered to occur when the defamation is spoken, libel is generally created through published, written, broadcast or streamed medium or media.

Related Terms and Phrases

Slander
Personal Insurance Coverage for Libel & Slander
Business Insurance Coverage for Libel & Slander

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