Remember that bad song from the early 1990’s? Well, they actually had something there for business owners now in the mid 2010’s. You have more power than you may think you do in controlling your rising insurance costs. Previously, I have talked about controlling health care costs by making your staff healthier. Now, I will discuss with you one of the ways that you can control your insurance costs for this and forthcoming years.
Today’s topic is a nice easy one, Property.
Property, in its most basic definition, is all your stuff. This is all the stuff that would fall out were you to pick up your building and shake it until everything in the building fell out. This includes your inventory, computers, desks, servers and all the other things that you have rolling around your office. On your insurance policy, this is called Business Personal Property. It makes sense for you to review these figures with your staff to make sure that you are using updated values on an annual basis.
I mention annual, because most people don’t even do it that often. Earlier this year, I was talking with a prospective client and they were using information that was about 3 years old. In those three years, they had upgraded their computer system and added 30% to their inventory. They also had a thing called “Co-Insurance”. Co-Insurance allows you to be mostly accurate on your true value of what you have in your building, or on the ground as we just dumped it all out.
What Co-Insurance does is allows you to be either 100%, 90% or 80% accurate on your estimations of your Property in case of such fluctuations. With 100% Co-Insurance, you are reporting highly accurate property values and are certain that in a loss, you are properly valuing your goods. When there is a loss, you will be paid the full amount of the loss, up to the limit of insurance you used and is shown on the policy. This should make you whole again. With 90% or 80% Co-Insurance you are estimating that the values you have are with 10% or 20% of the actual value of your stuff in the building. For example, if you are thinking you have $250,000 worth of stuff, you can use an 80% Co-Insurance and put $200,000 as your policy limit. In case of a loss, as long as the true value is equal to or less than $250,000, you will be paid for your loss up to the $200,000 policy limit.
The most conservative way to insure is to be at the 100% value as this provides the best rate on an overall basis. The 90% and the 80% values are good for when you have minor fluctuations. Let’s use the case above as an example. If the company had been at an 80% Co-Insurance and there was a loss, here is what would happen. If they were insured for $200,000 on the policy and they were supposed to have $260,000 (30% increase) and they had a $100,000, here’s how it would be paid:
The formula is What did I have it insured for, divided by what you should have insured it for. In this example, $200,000 / $260,000 = 77%. So the carrier would only pay 77% of the loss or $77,000. This is why you should always use as accurate of values as you can, so when a loss does happen, the few hundred dollars saved at the front end, does not cost you thousands at the back end.
So when you look at your policies with your staff, you are taking command of your insurance program and insuring your company properly. Remember, over insuring is almost as bad as under insuring the company. When you are paying for inventory that you no longer have, you are spending hard dollars for something that would not be paid anyway. This is something we help you avoid.
See, you do have the power!
Tim Kolacz is an account executive with Hub International Insurance Services and can be reach at 951-779-8730 or www.hubinternational.com