July/August 2003
Have you thought much about the financial strength of your insurance carrier? You should. The basic premise of insurance is that if you suffer a covered loss, your insurance carrier will be able to pay the loss. That financial protection is why you buy insurance. It’s what you’re buying when you pay your premiums. But not all insurance carriers are created equal—which means, of course, that not all insurers are equally secure from a financial standpoint.
Consider this: The number of insurance companies facing some form of state regulatory action has been growing. In 2000, 25 insurers faced state action. In 2001, the number grew to 35 companies. And in 2002 alone, 44 insurers faced state action. These actions included state supervision, rehabilitation, receivership, or liquidation. Other insurers went into voluntary runoff or had to sell some of their operations to stave off state action.
And don’t try to comfort yourself by thinking these problems were limited to small or relatively unknown insurers. Instead, they included such familiar names as Legion, Reliance, High-lands, and Kemper.
So it’s wise to know the Best’s and Standard & Poor’s ratings for the insurance firm that covers your assets. Be forewarned, though: The number of companies rated A or better has decreased.
It also helps to look at the size of your insurer, as this might play into its ability to weather the poor economic conditions that today’s insurance carriers face. After all, you don’t want to be left standing in line, trying to collect from the guaranty fund. That can be a long and complicated process—and potentially costly if caps on payments lead to your covered loss not being fully funded.
Ask anyone who’s been through this process—it takes away from the time you could spend running your business.
Scrap-Focused Insurers
ISRI’s insurance committee has worked hard to provide an insurance product that addresses exposures unique to the scrap industry. So make sure that your current insurer matches those coverages and services. Here are some items to consider:
• Does your current policy provide “impaired property” coverage? An amendment for impaired property modifies the “Exclusion in Damage to Impaired Property or Property Not Physically Injured” of coverage A of the general liability form. The result is to remove physical injury to “impaired property” from the exclusion.
• Does your current carrier offer a conversion coverage option? This coverage is designed to cover liability when a “named insured” unknowingly acquires stock from a seller who did not have legal title.
• Your policy should not include a “total pollution” exclusion, which might limit product liability coverage for materials to be recycled.
• Make sure your insurance carrier has the expertise in handling claims that are specific to the recycling industry. It’s important to have consistency in handling certain types of losses. The industry wants to make sure that a bad precedent isn’t set because of a bad decision on a claim. So it’s critical that there be a consistency of purpose and outcome.
Reminders for Renewing
As you consider renewing your current insurance policies, please keep these points in mind:
• Review your property values with your agent. You don’t want to suffer a loss and only then find out that you don’t have enough insurance to cover the loss. Nor do you want to end up becoming a co-insurer for a partial loss, which means that you receive less than the amount of the loss because you didn’t carry adequate insurance to cover the loss.
• Make sure you indicate whether or not to include “stock” in the values used to insure your property. It’s critical to be specific on such points.
• Also be sure to review your sales and payroll. Depending on your own specific business and region, these may need to be adjusted. Just as with the IRS, you don’t want to have to pay in a large amount at the end of the year, nor do you want the insurance company to charge you based on levels that are greater than what you anticipate.
• Review the deductible levels on all your policies. You may be able to save on premiums by taking on higher levels of risk, should your appetite and financial wherewithal allow it. •
—Monica McNally, senior vice president of RecycleGuard/Willis of New Hampshire Inc. (Portsmouth, N.H.)
Have you thought much about the financial strength of your insurance carrier? You should. The basic premise of insurance is that if you suffer a covered loss, your insurance carrier will be able to pay the loss. That financial protection is why you buy insurance.