Welcome to Staying Connected, brought to you by SkyCastle Productions.
In Staying Connected our goal is to help business owners navigate the uncertain times we’re currently living in, and help provide tips to operating a business when your customers and clients can’t physically be on site.
In today’s episode we’re talking with Ken Weikum of The Weikum Group. Ken is going to answer some questions we have about Insurance and what it can and can’t be used for during COVID-19 as well as what you need to protect yourself as your business changes.
Ken has over ten years in the insurance business, starting as an adjuster and then going on to found his own independent agency. Ken’s journey in the insurance world gives him a unique approach. He is familiar with the various policies that restore people after a loss and the denials that often paint the industry with a bad name.
Questions for Ken
H: Someone who owns a restaurant may be interested in providing delivery as a service now that their customers can’t physically come into their place of business. Is this something they can do with most insurance policies? Or, will they need to increase their coverage to extend to their drivers?
This kind of coverage should be carefully discussed with your insurance agent, as every insurance company has different underwriting rules.
Generally speaking, EVERY BUSINESS should have an endorsement called Non owned liability.
Non owned or hired non owned protects the owner and their employees who sometimes drive their own car, or one that is rented for business.
This may include deliveries on behalf of the restaurant. The issue is that not all insurance companies are willing to accept this risk by default, so we must involve your insurance agent before restaurants just assume there is coverage.
If an employee is delivering food and gets an accident, that liability could be denied, exposing the employee and the business to lawsuits.
Second- Employees need to be VERY careful about accepting this liability. Many personal auto insurance policies exclude activities such as delivery, including UBER or Uber eats. Personal auto policies are designed around commuting, and recreational driving. When someone is now using the vehicle for work, the exposure to liability is now much different.
The good news is that many personal/commercial lines carriers are easing these restrictions due to the shelter in place. I want to be sure that does not give our clients license to just do what ever, please notify your agent and discuss coverages before altering your business operations in any way. Ignorance is a weak defense against an insurance contract.
H: Does COVID-19 count as business interruption under a corporate insurance policy?
Business interruption coverage is a wonderful coverage that will pay for the expenses, and estimated income a business might lose out on in the event of a covered loss. What you are talking about is if the government forces an evacuation, due to a fire or hurricane, business interruption coverage is typically used. This is done because the risk, hurricane or fire, is a covered loss and there is significant evidence to show a loss is coming. It would be reckless of an insurance company to deny claims because business owners didn’t stay to protect their property, so business interruption coverage is often afforded before a loss occurs.
Back in 2002, SARS (a cousin to COVID) ravaged China the world. SAR’s exposed insurance companies to pandemics unlike anything they had seen before. Some lawsuits for Business interruption went into the 100’s of millions.
After SARS insurance companies started to exclude pandemics as the risk exposure was simply too high.
I know many people might have a need jerk reaction to this as self serving, but let me dive deeper into why they had to exclude the policy.
One of the many reasons people reach out to TWG is because they believe their insurance cost is simply too high. Price is discussed on commercials, it is everywhere. Now Imagine if your $2000/year policy just became $20,000, but now it included pandemics.
Today you might think that is a great deal, but let’s go back to last summer. Had I approached you and said, hey look pandemics aren’t covered and I want to sell you this $20,000 policy, you would probably laugh in my face.
In fact, a company called Marsh did in fact offer policies to massive corporations, which included protection against pandemics, yet not a single policy was ever sold.
So it isn’t necessarily evil insurance companies who don’t want to pay, our products are designed around the demand for them.
It may be more prudent for a restaurant to stash away 18,000 dollars/year for 10 years and self retain that risk instead of paying that in premiums on a risk that is very difficult to anticipate.
H: If an office has had to move their employees to work from home, is there an insurance policy that covers the increased risk of a cyber threat to their company from unprotected internet terminals their staff might be using at home?
Cyber insurance is a whole other animal that the industry is just now starting to rate for. Currently, Cyber is BY FAR the greatest risk to a business, well and beyond the traditional risks that hazard insurance accounts for. Obviously the exposure of a roofer vs an accountant will play a very large role in the premium pricing.
In fact, you can have the best firewalls and protections but the greatest RISK to cyber liability is employees. Fishing and trojan’s are still the greatest threat to businesses. These virus’s provide control of your computer to the hacker. While the 90’s and 2000’s exposed us to some of the sillier scams, such as emails offering millions of dollars but you need to send them 1000 dollars in target gift cards, hackers are getting FAR more sophisticated. Many will hack an email and wait for years for a particular transaction. Realtors are at a very high risk, as they deal with Wire transfers, which once completed, can not be refunded. Hackers will copy signatures, and intercept emails, then collect the information needed under the guise of your email and scam clients, and yes you can be held liable for their loss as well. Insurance protects against the unforeseen. If your clients have questions on cyber, you can always reach out and we can discuss those particular needs offline.
H: I’ve seen on Facebook people claiming that not only business insurance but also personal insurance are paying out claims related to COVID-19, is this true? If yes, how and what types of insurance are providing this? If not, could you explain why this isn’t so?
Both Commercial and Personal lines insurance policies are built in a particular way. First you must have covered property/business, then that business must suffer a loss that is covered, THEN there must be a coverage amount to follow.
Unfortunately, as we discussed before, virus is often excluded. I mean, imagine being held liable for the income of a restaurant every time someone sneezed during flu season. Insurance companies would either have to charge a tremendous amount of money, or simply go out of business if they where forced to cover virus.
Other common exclusions are Smog, corrosion, pollution or contamination, earthquake, volcanos, and NUCLEAR HAZARD.
Insurance companies are forced to hold a large percentage of their promised risk. These kinds of risks are simply too wide spread and cause too much damage to be able to offer any meaningful coverage.
In cases that I have seen regarding these exclusions and the insured sues the insurance company, the end result doesn’t end very well for most businesses. This is due to the fact that the coverage should end one the threat has been eliminated.
H: Finally, as an insurance provider what would you think should be top priority for any new business starting out to protect them from the unforeseen?
There is a wonderful book called The E myth by Michael E Gerber that I would recommend any small business or aspiring entrepreneur to read. In short, Michael discusses the three types of business owners. The Entrepreneur would can run any business and scale any business. The expert tactician, which is like myself, the guy who spent 10 years as an adjuster and another two years as a sales producer. They are experts in policies, and what they do. They make the company run, but often find themselves held back by the entrepreneur and by the last kind of person. HR. HR people are people people, yet they often do not understand the product or marketing needed to scale a business.
The reason I bring this up is because, being a business owner combines all three people. For many of us, we are one but not the others. This exposure can cause stress and expose business owners to risks that are unforeseen.
Surround yourself with a great Banker, Lawyer, CPA, and insurance agent. I spent all day assessing risk, and providing coverage where. There hasn’t been a single policy in three years that I have come across and said, yeah this doesn’t have ANY holes. When individuals go out and create their own LLC, or buy their own insurance, they are retaining the risk of those business mistakes. With the 10000’s of task that small business owners are already in charge of, punt a few off to experts, pay the small premium, and get valuable time back to run the business.
H: Many companies are doing refunds due to Covid, can you expand on what these are and what should people expect?
That is a wonderful question, to best answer this question lets first discuss how insurance premiums are determined. Cost of claims, overhead, and 3% profit. Every single dollar you spend, your money is going to those three categories. If the cost of either claims or overhead increase, that amount is spread out amongst the entire book of business. What doesn’t increase is profits, and that is by regulation of the State department of insurance.
While unprecedented, most insurance companies are doing small refunds for April and May to show they are doing something immediately to help their clients. Normally, if we saw this large of a difference in claim volume, renewal rates would go down, yet that could take 6-12 months for people to see, and they need help now. So insurance companies are getting approval from the state to issue refunds. Yet before you get all excited, lets consider a few things.
- Not all insurance companies are participating
- Not all clients in those companies are getting a refund!
- State Farm for example is releasing funds for their mutual clients, but not everyone written with State Farm is written under their mutual banner.
- It is a % typically between 10-20% of the premium for April and May.
- Ideally, you should be paying roughly 100/month per vehicle.
- This is a refund of $30 dollars.
- Don’t given in to the hype.
- Marketing is a beautiful thing. When State Farm announced it would refunding 2 billion dollars to its policy holders, it make someone think that they are about to get PAID! State Farm is the largest insurer in the States, doubling the size of its next competitor, Allstate by twice its size. They probably bring in 30 billion dollars/month in premium.
- Some are crediting this to your next bill or they will be sending you a check. Check with your agent if you are curious on the details.
That being said- I would like to point out that many of my insurance companies are working with clients who have lost their jobs due to the shelter in place. I beg you, do not wait until it is bad or start missing payments. Insurance agents and insurance companies are here to help but we can not proactively know the situation of all of our insureds with out speaking to them.
A lapse insurance or missed payments can significantly impact your insurance score, which impacts your rate or insurability.