President's Blog

Wednesday, March 26, 2008

Understanding the true value of Business Insurance

Insurance is widely regarded as a “necessary evil” and often purchased out of necessity to satisfy the buyer’s client in a business transaction, rather than for protection. It is only when the insured business actually has a claim that the real value of the insurance “relationship” becomes clear.

When purchasing insurance the buyer should take into consideration several factors:

1) The premium/price.
2) The experience of the broker/agent to represent you.
3) The appropriateness of the coverage to protect against the insurable risks faced by the business.
4) The license status and financial stability of the Insurer.

Unfortunately I would guess that 80% of insurance buyers consider item 1 above and rarely take into consideration 2, 3 or 4. Here are some interesting facts from first hand experience:

a) The premium/price is not always what it may appear to be at face value. Please explore it closely and ask your insurance adviser how it may be affected upwards or downwards by features within the policy. This is after all a contract you are considering entering with the Insurer, you should read it and understand it.

b) The broker may place 70% or more household and personal automobile insurance plus coverage on several small businesses. It may not possess the knowledge required to advise you on your business insurance needs. If the broker is a personal friend, what will you do when you have a claim and you discover that your friend really did not put your coverage together properly as he did not understand the business risks you face?

c) Not all insurance policies are the same. Every policy contains conditions, limitations and exclusions that may eliminate or certainly reduce the coverage you feel you may have. Please make sure your insurance adviser explains your coverage to you properly as to how and why it suits your business’s needs.

d) Most insurers have to be either Provincially or Federally Licensed to conduct business in a Province/Canada. In very rare cases exceptions are made where coverage is not otherwise available domestically, subject to strict declaration procedures the broker is required to follow. Most insurers are also usually financially rated by a recognizable Rating Agency, such as A.M. Best Company or Fitch Ratings. It is important to review the insurer rating and if it is anything less than Best BBB+ for example, we suggest you ask more questions about the financial stability of the insurer.

e) If you plan on doing business outside of Canada involving the actual presence of your operations, assets or staff in another Country including the United States, your Canadian Insurer may not be permitted (or admitted) to do business in that State/Country. Usually foreign nations (including the United States) have specific rules and regulations governing insurance and failure to pay attention to these rules can lead to fines and/or imprisonment. Inform your insurance adviser if you intend to expand your operations into a different country so they can inform you appropriately.

There is far more that can be said under each of the subjects discussed here. Hopefully I have said enough to get you thinking about how you go about your insurance purchasing so that the next time you are looking for insurance on your business, you consider coverage, insurer financial stability and service as well as premium/price in your overall decision.

So be careful, the True Value of what you ultimately purchase is not represented by the premium/price you pay. In fact, you could pay a higher premium/price than the lowest proposed premium/price thinking you are getting better value, but in actual fact may be getting far less out of the arrangement.

Thanks for reading my blog, I hope it helps you. 

Wednesday, March 12, 2008

President’s Blog

Hello and welcome to our webpage.  I hope you find everything you need to inform you about us and that you decide to bookmark this page and save it for future reference.  This is my very first BLOG and I am a bit of a novice at it.  I am hopeful the blog, which I will update as often as possible, will give you a unique insight into and understanding of risk, risk management and insurance and the insurance industry.

For the sake of this first BLOG we welcome any feedback you may have on our newly designed webpage.

I only have a brief commentary to presently offer on our the Insurance Industry for now.  Most insurance brokers today will constantly warn you in almost a fear mongering manner that one day the insurance marketplace will once again return to the complex and expensive marketplace it became between 2000 and 2005.  Even I was willing to join this “bandwagon” for a while but my mind is changed. I am not saying we will never see a “hard” market again but unlike many of my peers, I read and keep track of what is going on in my industry and what the statisticians, catastrophe modelers, rating agencies, insurers and reinsurers in particular have to say.  Recently the general tone has been that the current soft insurance market conditions are likely to continue for several years to come with perhaps a small correction towards the end of 2008.  Barring a “perfect storm” type catastrophe scenario, the insurance industry is well capitalized and structured to withstand enormous losses, case in point the continuing soft conditions even following the worst insurance loss year in history after Hurricane Katrina in 2005 after which experts have suggested losses in the area of $100Bn. By comparison 2006 was relatively insignificant and even 2007 a year of wildfires and floods to date has barely approached the 2005 loss levels.

Whilst I do not believe there will be another “hard” marketplace for a while, (historically they do not come about very often), I must offer the suggestion that we introduce a new term and call it a “moderate” marketplace – how original.  I believe as building materials and other costs continue to rise we will in time see a slight correction and stabilization in insurance pricing.  This is normal and the increases that may be applied will seem reasonable to you.  The industry last tried this in 2000 with moderate increases but it did not anticipate the stock market deterioration and tragic World Trade Centre Catastrophe that triggered our most recent and painfully long “hard market”.  

Of course with all things speculative there is never accuracy and precision.  I may be right, I may be wrong.  The best I can suggest to the reader of this BLOG is to always assume a moderate insurance rate increase when setting your budgets and to always seek the advice of your insurance professional well before setting your insurance budget.  At the very least if you budget for an increase and you end up with a reduction, the surplus is positive against your results.  Now as a businessperson like you, that to me is Sensible Business. 

Feel free to contact me directly or to email me if you would like me to write about any subject of interest to you.

Until next time.

Simon Fenn, CIP

President