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Most people think, “If my policy has replacement cost coverage I am ok, right?”  Well, maybe not.  The term “replacement cost” means “the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose.”

A Common Myth

“My policy has replacement cost coverage, so I am covered in the event of a loss.”

Myth Busted

Replacement cost coverage has limitations. The most important limitation is that it will only repair or replace up to the policy limit.  So, if your building has a replacement value of $500,000, but your policy has a limit of $450,000, you are underinsured by $50,000.

There may also be a need for functional or extended replacement cost coverage in certain situations.  A guaranteed replacement cost policy pays whatever it costs to rebuild your building as it was before the fire or other disaster–even if it exceeds the policy limit.

The example above is an excellent example of why it is important to have an agent who knows and understands insurance, and one who can communicate complex issues in “English”. This allows our customers to make intelligent choices regarding their insurance.

Most people would think that having a standard insurance policy written from a reputable insurer is the most important thing you need to protect yourself.  Let us consider a different way of thinking.  We use a phrase around our office that describes how we think; “An insurance policy is only as good as the agent who provides it.”  Let us define this in detail.

 

First, you must understand that insurance policies are not a “one size fits all” product.  Insurance coverage is designed to match your individual risk.  It is not the insurer’s responsibility to provide a product that meets your needs; they rely on the agent to determine that.  For example, if you need a truck to haul your trailer, you would not select a Honda Civic.  No, you might even select a truck with a towing package, and large capacity transmission and braking systems.  These would be designed specifically to your needs.

 

To put this in insurance terms, a company that manufacturers auto parts need different coverage than a restaurant.  A restaurant needs coverage like food spoilage, liquor liability and food poisoning coverage.  A manufacture will need product liability insurance, special coverage on equipment, and possibly foreign products liability coverage.

 

An Experienced Agent Will Understand Your Needs

Coverage does not just vary from state to state; it varies from company to company within the same state.  Many companies use what are known as ‘manuscript’ policy forms. These forms do not necessarily use industry-standard wording, and may contain altered provisions that materially affect coverage in some way.

Your agent should identify your risks and help you understand what you should insure, design a coverage plan, then go to the market to negotiate the best possible combination of coverage, pricing and service. The agent must understand the tax and legal aspects of the products he or she sells and how they are designed to fit into a client’s overall financial situation.

This article is a continuation of our series on creating a new way of thinking about insurance. As you consider your business insurance, we invite you to think about this subject in the much larger spectrum of “Total Cost of Risk”. Your insurance program is more the premiums you pay

Total Cost of Risk is the sum of the costs arising from all of the risks faced by an organization. Risks can generally be categorized into one of the following three classes:

Operational– Operational Risk includes the cost of products, protection of property, insurance, damage to or destruction of supply sources for key raw materials, components, or services, injuries to employees or outside parties, damage to the property of outside parties including resulting consequential loss, damage to the environment, and employment decisions.

Financial– Financial Risk includes risks associated with commodity price variability or commodity availability, costs of capital and borrowing, customer credits, business development, profit and banking costs.

Strategic– Strategic Risk includes issues of risk that can have a major impact on the overall viability of an organization. These include issues centering on reputation of the organization or its employees, loyalty to the organization of customers or clients, development of new products or services, meeting the demand for existing products or services, and pricing of the organization’s products or services.

When you consider all your risks, it is important to understand how a well-designed insurance program can impact all these areas.

Change your Thinking About Insurance

Most businesses only look at their premiums when they evaluate insurance costs. We would like to provide an alternative view. For example, by only considering insurance premiums you are eliminating many other factors in your total insurance costs. Here are factors that make up your total cost of risk.

• Internal Risk Administration
• Legal and Claims Expenses
• Deductible Costs
• Uninsured Loss Costs
• Safety Program Costs
• Insurance Premiums
• Contracted costs

Next up; we will review each of the cost of risk areas and how they impact your overall insurance program.

This article is a continuation in our series on how to think differently about insurance.

We live in the greatest age of communication. Today there are more ways to connect with each other than any other time in history.  For example, we have access to personal cell phones, email, web pages, videos, social media, traditional mail and more. So why don’t you and your independent insurance agent communicate more often? And, when you do communicate with your agent, what kind, and how much, communication is valuable to the agent/client relationship? Reichley Insurance is attempting to create a new way of thinking about the agent/client insurance relationship.

Let us start by asking and answering the following question, “What kind of communication and service are you getting from your agent”? If all your agent does is send you a policy and an invoice, then your agent is way overpaid. There is so much more that an agent shouldbe doing to educate and serve you. Here are a few examples of what our agents at Reichley Insurance do:

1. We ask questions about your risks.
2. We educate you on these risks and their impact.
3. Together we select a program that fits your needs.
4. We continue to educate you through regular communication.
5. Our web page offers ongoing education.
6. If there is an important event that may affect you, we offer solutions.
7. We send you automatic emails about every policy transaction.
8. We provide a letter with each insured renewal package explaining coverage changes and options.
9. Our experienced staff is able to clearly discuss issues and solutions.

Recent J.D. Powers & Associates.com score study found consumers find agents easier to use than a black-box 800 number or a website, and still prefer to finalize their purchase through an agent whom they can visit or call. In today’s cyber world, an agent should provide that desired personal touch. At Reichley Insurance, our employees are committed to developing ongoing communication with our clients, and striving to exceed your expectations.