Property & Casualty Insurance Lingo

The Property and Casualty (P&C) insurance industry is a vast segment of the insurance industry, and there are numerous terms used in it. The following list was made to explain common terminology used in Personal and Commercial Property and Casualty insurance:

Property Insurance: It covers any physical item that could suffer a loss. Examples: your home, your car, your office building, your jewelry, your copier/printer, etc. 

Casualty Insurance: Any situation where you might be liable for harming someone or someone's property. It is a cover-all term for liability insurance coverages. 

Deductible: Also known as a Retention. The Deductible is the amount the insured must pay in order to have the rest of the claim covered. 

Exposure: As in, exposure to loss. Some businesses have exposures that require specialty insurance. Example: The Exposures of an amusement park are harder to cover than a bakery’s.

Peril: A cause of loss. Examples of Perils: Fire, Wind, Hail.

Risk: The possibility of a loss. Example: Contractors have more risk than an ice cream parlor.

Hazard: Something that increases risk; something that increases the chances of a loss. Example: Wet floors in a grocery store, cracked pavement in a parking lot.

Inception Date: Also known as the Effective Date. The day and time when your policy starts to cover you.

Expiration Date: Also known as Ex-Date. The day and time when your policy stops covering you.

Coverage: A single line of insurance. Property coverage is a single line of insurance. A Homeowner’s policy has multiple coverages.

Package policy: A Package policy combines two or more coverages into a single policy, where you pay one premium and the coverage all have the same Inception. A Homeowner’s policy is a package policy, as it has property and personal liability coverages.

Personal Lines: These are the coverages that deal with the risk of the average consumer. These products are far simpler than Commercial Lines, and the products are fairly consistent between insurance companies.

Commercial Lines: These are the coverages that deal with the risk of businesses and organizations. The products in Commercial Lines vary greatly between insurance companies, and the total number of products available is vast.

Standard Insurer: An insurance company that has products for the general public. The products are broad with competitive prices, with the goal of gaining market share.

Surplus Lines: An insurance company that has products for special exposures (such as a bad claim history). These companies specialize in writing high-risk exposures. The products are non-standard, meaning that the policy wording will be less broad, and the premium will be higher.

Assigned Risk Worker’s Compensation: Also known as ‘the pool’. Assigned Risk is for companies that have a bad Workers’ Comp claim history and/or companies that are in a high-loss industry. Being similar to Surplus Lines, the premium you pay with Assigned Risk will be far greater than a Standard Insurer.

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What to Do if Your Engine Overheats

With the dog days of summer upon us, you can bet that the number of cars parked along the side of the road with their hoods up will increase. It’s Murphy’s law that on the hottest day of the year, your engine's temp will start creeping up into the red. So after you grumble a bit and let out a sigh, do you know what to do? Let's start with ways to keep an overheating engine at bay.

Steps to Prevent Engine Overheating:

Determining the Normal Operating Temperature: Keeping your car from dangerously overheating is done best when you know how warm your engine should be. A properly working car will take 5-10 minutes to fully warm up in hot weather, and you’ll know it’s fully warmed up when the temperature gauge’s needle stops moving. Note: Even in sub-zero temps, a properly working car will run as warm as it does on a hundred degree day. So once the needle stops moving, make a mental note of where it is—this is your normal operating temperature.

Be Proactive: Now that you know where your engine should be running, make sure to keep an eye on the engine temperature. You don’t have to constantly hover over it, but checking on it occasionally is a good habit to have—this is especially so on extra hot days.

Note: Running your car’s A/C puts a lot of extra load on your engine. So on very hot days, don’t be surprised if your engine runs a little hotter than usual if your A/C is on—just be extra attentive to the heat gauge if your A/C is on!

Maintain: The easiest way to prevent you engine from overheating is to keep the coolant level at 'Full'. To keep your coolant properly filled, you'll first need to know what to look for: the coolant tank is usually a translucent plastic container that can be found under the hood. It will have markings on the side indicating the proper coolant level. If it's below full, add a 50/50 mixture of water to coolant fluid to get it back to full. Note: The fluid in your coolant reservoir is usually a 50/50 mix of water to coolant fluid, but make sure to read your owner's manual to make sure! The cooling system is a closed system, so theoretically, your coolant level should never drop. However, leaks happen, and low-quality coolant evaporates, so make sure to keep an eye on the coolant level. 

How to Handle an Overheating Engine:

When the Needle Starts to Rise: If you notice the engine’s temperature rising past normal, you have a few options before you have to pull over. First, turn off your A/C immediately. It won’t be as nice as air conditioning, but rolling down your windows should still keep you cool. If that doesn't fix it, turn your heater on as high as possible. This will redirect some of the hot air in the engine and hopefully keep it cool (you’ll have to sweat it out, though).

Pulling Over: If those two options still haven't changed anything, pull over as soon as you safely can. Find a good shoulder on the highway or interstate, or find a side street or parking lot if you're in town. Get as far away from traffic as (safely) possible. Also, wait for an overpass to park underneath or a shady tree if you can. Note: It’s recommended to never go more than a quarter mile while your engine's temperature is in the red!

Opening the Hood: Once you’re safely pulled over, turn off the vehicle and open the hood, but don’t touch it with your bare skin! If you have gloves, wear them while raising the hood. A towel or shirt might work as well. Also, there might be steam or smoke trapped under the hood, so be careful as you’re opening it! With the hood up, it may take over thirty minutes to cool your engine down to a safe temperature. Note: DO NOT pour water directly onto the engine/into the radiator! 

Playing Mechanic: When the temperature has gone down, it’s time to start troubleshooting.The best place to start is checking the coolant level. The coolant tank is usually made out of translucent plastic, and the proper coolant level will be marked, often with a line with “Full” by it. If the level is below full, you can add water to get you where you need to go. Note: again, a 50/50 mixture of water to coolant is typically recommended, so put in some coolant as soon as you can. 

However, if the tank is almost or entirely empty, you've probably sprung a leak. Check for cracks in the coolant tank, or cracks in the radiator (the radiator is at the very front of your engine. You'll know it's the radiator because there will be a metal cap on it that has an orange sticker on top of it, and the sticker will say something like: “Warning: Never open when hot"). If you can't find any cracks, look for hoses that are worn out or disconnected. If you've found the broken/worn-out part, it's probably not going to be an easy fix—it's time to call a tow truck.

If your engine has overheated but the coolant level is where it should be, the problem could be a clog in your cooling system, or it could be a mechanical/electrical issue. Again, it's time to throw-in the towel and call a tow truck. 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

IRMI Tip of the Month: Maintain Your Clothes Dryer

According to the U.S. Consumer Product Safety Commission report, there are approximately 10,000 annual residential fire losses in which the source of the fire is in the clothes dryer or vent. Dryers are the third most common type of equipment involved in fires, ranking behind stoves and fixed area heaters. Clothes dryers can catch fire due to excessive lint build-up in the exhaust pipe or inside the dryer; this lint build-up is often out-of-sight. As a result, you should take the following steps to reduce the chance of your dryer starting a fire.

• Follow the manufacturer’s instructions when installing the vent pipe.
• Keep the dryer vent clean and unplugged. Check for a plugged vent if the dryer does not dry clothes efficiently.
• Remove and clean the lint screen before each use.
• Keep all combustibles away from the clothes dryer.
• Hire a qualified technician to periodically inspect gas clothes dryers.

Get more personal lines insurance and risk management tips and ideas from IRMI.

Copyright 2008, International Risk Management Institute, Inc.

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Excess Liability Policies

The Excess Liability policy has many similarities to the Umbrella policy. However, the differences are in breadth of coverage, pricing, and policy provisions. Excess Liability policies can be written for both personal and commercial risks, but this article focuses more on the commercial application.

An Excess Liability (EL) policy works in a similar fashion as an Umbrella policy; it provides an extra tier of liability coverage for large losses. The EL policy is typically written for a combined occurrence/aggregate limit of $1,000,000, and it would step in after an underlying liability policy limit is maxed out.

Example:

Let's imagine your business has a General Liability limit of $1mil occurrence, $2mil aggregate. Your Excess Liability policy has a combined occurrence/aggregate limit of $1mil. If your company sustained a $1.5mil General Liability loss, your General Liability policy would cover the first $1mil of the loss, and then your Excess Liability would cover the $.5mil left over. If any other losses happened during the policy term, the General Liability policy would have up to $1mil of coverage left, and the Excess Liability would have $.5mil left to go over the General Liability policy, or any other liability policy. (A similar situation could be played out with automobile liability coverage.)

What makes the Excess Liability policy different from the Umbrella policy?

The main difference between an Umbrella policy and an Excess Liability policy is in the breadth of coverage of each. The Excess Liability policy typically follows the wording of the underlying liability policy exactly, while the Umbrella policy has its own coverages and exclusions. So for an Excess Liability policy, if the General Liability policy excludes claims of mental anguish, so does the EL policy (this is called a 'follow-form' Excess Liability policy). Typically, an Umbrella policy would cover claims involving mental trauma on a first-dollar basis (as a standard General Liability policy typically only covers direct bodily injury and damage to property of others). 

To summarize, the Excess Liability policy literally just adds X amount of liability dollars above your underlying liability policies, while the Umbrella policy both adds a layer of liability protection and broadens coverage. Because of this, underwriting standards will be higher for Umbrella policies than Excess Liability policies, and an Excess Liability policy will be cheaper than an Umbrella policy. 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Introduction to Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance, often shortened to EPLI ("ep-lee"), covers lawsuits made against a business for employment-related wrongful acts. EPLI policy language is highly variable, but all function in the same manner. EPLI policies can be written for almost any business, as long as it has at least one employee.

Employment Practices Liability Insurance covers businesses for allegations of wrongful acts arising from any part of the employment process—from interviewing to post-firing. The term ‘wrongful acts’ is a catch-all for actions that have been made illegal by various employment laws, such as the Federal Whistleblower Protection Act, the Family and Medical Leave Act, the Civil Rights Act of 1991, and the Americans with Disabilities Act. There are seemingly endless possibilities for an employment-related lawsuit, but the following list outlines a few basic examples:

• During the application process, a prospective employee may sue if they don’t get the job, claiming discrimination due to their physical handicaps, race, religion, gender, or sexual identity.
• During their employment, an employee might file suit claiming that they were sexually harassed.
• An employee may sue for invasion of privacy by their employer.
• An employee could claim that they were discriminated against because they weren’t selected for a career-advancing assignment or opportunity.
• An employee can sue if they feel like they aren’t being paid a fair wage, or if they haven’t been promoted.
• After the firing of an employee, the business could be sued for wrongful termination.
• A former employee could sue if they believe they were fired because they were a ‘whistle blower’, claiming that they were fired in retaliation.
• A former employee could sue for slander or defamation if they believe their former employer is giving an unjust review of them to other employers.

 How does the EPLI policy work?

The EPLI policy was designed to defend businesses that make employment-related mistakes. So when an employment-related suit is brought against a business, the EPLI steps in and covers the defense costs. It will also pay the settlement if the business is deemed guilty. Note that some carriers’ policies will provide the legal defense themselves, and other carriers’ policies will only reimburse the insured for the defense and settlement costs. Also, many policies exclude certain scenarios and specific claims. Careful policy selection is critical, and consulting your agent is highly recommended.

Who needs an EPLI policy?

Potentially any employer could be sued for an employment related offense, even if they only have a single employee. However, the larger and more diverse the employee base is, the more likely an employment practices claim will arise. Also, publicly traded companies will pay more than private companies. 

The premium for an EPLI policy is determined by the number of employees, the HR practices and precautions taken by the business, and the industry the business is in. Businesses can control their premium by managing their employee turnover rate and effectively handling complaints and accommodation requests.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

How to Find Insurance for Your New Business

Entrepreneurship is at the heart of the American Dream, and has led to many worldwide companies—McDonald’s, Coca-Cola, and Apple, just to name a few! The freedom and empowerment of owning your own business can be very fulfilling, but it takes a lot of work to get your new venture up and running. You’ll be facing plenty of ‘red tape’, along with making a business plan, finding a location, finding funding, and much more. Once you get most of that figured out, you’ll need to line up your insurance before you can open your doors for business.

Most first-time entrepreneurs have never dealt with anything more than Homeowner’s and Automobile insurance before. The transition from personal lines to commercial lines can be a bit rough—commercial insurance is a huge sector with varying policy language, scores of different coverages, and new exceptions and exclusions that you’ll never see on a personal lines policy. These differences make sense since businesses inherently deal with more risk and operate in a very different manner than your average homeowner. Even though it’s different than what you’re used to, commercial insurance still serves the same basic function—keeping you safe. Commercial insurance just expands the coverage you’ll be receiving, so both you and your business are safe!

Once you have figured out where your business is going to be located, whether or not you’ll have employees, and how you’re going to deliver your product/provide your service, you should contact an independent agent to see what your new business’s insurance options are. Contacting an independent agent will allow for multiple quotes from a single agent, saving you valuable time. When you meet with the agent, bring along the following information to increase the quote’s accuracy: square footage of your rented/purchased business space, estimated gross revenue for the first year, your resume showing pertinent experience, and your business plan (also, if you’re going to have employees, bring along the number of part time and full time employees you’ll have, and an estimated gross payroll for each). Also make sure to discuss exactly what your new business will be doing, where you will be doing it, and how you’ll be doing it. Underwriters love information, so the more details you can share about yourself and the processes your business will go through to perform your service/deliver your product, the better your premium will be!  

With that information, the agent should be able to get you an estimated premium for one year’s worth of coverage. This premium will most likely be higher than the average premium for other businesses in the industry, as you do not have any claim history yet. The agent should also discuss with you any additional coverages you’ll need that you might not have thought of or even known that you would need.

Here’s a brief list of coverages you will likely see:

General Liability: To cover slips, trips, falls, personal liability, and property damage caused by you, your business, your employees, and your premises. For contractors, it also covers any damage done by your completed work. All businesses need this coverage.

Professional Liability: For any job that requires a license, you’ll typically need to have Professional Liability (also known as Errors & Omissions insurance). Other occupations with high levels of risk may need Professional Liability as well.

Property: Commercial property forms will cover your building and your business personal property. It will also cover your business’s detached signs and will have options and policy language exclusive to commercial lines.

Business Income: After a covered loss, your business may not be able to function, but bills will still need to be paid. Business Income will pay you your expected net income while your business is out of operation.

Workers’Compensation: Any business with at least one employee is legally required to have Workers’ Compensation, even if your only employee is a family member and/or the employee works part-time.

Once you receive your quote(s), you may want to adjust your business plan to reflect the exact insurance expense you’ll be incurring, and adjust the rest of your plan accordingly. You may also want to look into limiting or adjusting some of your business’s products or services to reduce your risk, and thus reducing your premium. Discussing premium-saving options with the insurance agent is highly recommended. Risk reduction is very easy to implement before your business starts, but can be nearly impossible to do once it is in operation!

Entrepreneurship can be very challenging, but it can also be very rewarding. If you’ve decided to follow the entrepreneurial path, make sure you partner with an agent that has experience with start-ups. Also make sure that the agent is willing to work with you on developing best practices to reduce risk and keep your business claim-free and generating revenue!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Business Income & Extra Expense

A comprehensive insurance program should cover your various property and liability exposures, but should also keep your business afloat while you rebuild after a loss. Business Income and Extra Expense are coverages used to pay the insured after a loss, keeping the money-flow moving as if the claim never happened.

Business Income is a coverage that reimburses a business for reduced or completely lost income due to a physical loss to their building/premises due to a covered peril. An easy example is a bakery burning down. While the building is being rebuilt, the bakery cannot operate. The loss of income is substantial, as it may take up to a year to finish the new building. During that time, the bakery would need to have Business Income coverage to receive any sort of income while the bakery is waiting on the new building. This coverage is particularly useful for businesses that still have loans and liens on their property that they would still be required to pay or other contractual expenses that they must pay. The Business Income coverage amount that a business would receive is a ‘net income’, however. If you are receiving payments through Business Income, you won’t receive any reimbursement for fees and expenses that you won’t be incurring while the business is down (such as the cost of the dough, in the bakery example). Business Income coverage is usually subject to a total limit of payments, a time limit, or both. Also, Business Income coverage alone would not cover additional expenses of renting a temporary location or expediting the rebuilding process, etc.

Extra Expense coverage is an optional coverage that can be added to Business Income. In the previous example, if the bakery had Extra Expense coverage along with their Business Income coverage, the Extra Expense coverage would cover the additional costs that were incurred due to renting a temporary location, overnight delivery of new supplies and equipment, expedited rebuilding of the original location, etc. This coverage often positively impacts the business’ ability to return to the same capacity it was at before a loss, as being out-of-operation for too long may result in your customers looking for a different provider of your product/service.

Calculating a proper level of Business Income coverage can be very complicated, especially for new businesses or businesses with seasonal/variable products. Keeping excellent accounting records, and backing up those accounting records outside of the business may be essential to getting properly reimbursed by Business Income. Also, initially establishing the correct amount of Business Income coverage should be reserved for a trained insurance professional, as insurance underwriters calculate Business Income differently than a CPA would. 

Note: With Business Income and Extra Expense coverages, the verbiage used is that these coverages will only be triggered after a Covered Loss. Determining the covered losses depends on the policy form you're using. Each policy has a Cause of Loss designation. The more perils covered, the more likely you'll be able to receive the benefit of Business Income and Extra Expense.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.