A Diamond is a Girl's Best Friend

 

There aren’t many people I know who don’t like getting something new and shiny – especially if it’s a beautiful tennis bracelet or a great pair of diamond earrings.  As the saying goes, “A diamond is a girl’s best friend.”

Over the past three weeks I have run into multiple individuals who are concerned about their jewelry collections and potential losses associated with these items.  What are some of the (warranted) concerns I am seeing?

-          Chipped or missing stones

-          Mysterious disappearance of an item

-          One lost item of a pair or set

-          Theft

So – what is the best way to avoid or deal with these losses before they happen?

-          Have your items regularly checked by a jeweler (One recent client caught a horrible loss because the jeweler checked this item every six months.  If they had not done this, it would have likely been years before they were able to recover the damages.)

-          Get an in home safe that is bolted down (I can’t tell you how many horror stories I have heard where the individual has a safe but it’s not bolted.  The thief takes the entire safe and the whole collection is gone.)

-          Make sure your insurance policy includes pair and set coverage (This is especially important for earrings.  If one earring is lost or stolen, you want to be sure you can replace both of them so they match exactly.  This endorsement allows you to do that.)

-          Bring only enough jewelry for you to wear if you’re traveling (There are some cases where you may need special items, but at the risk of having them stolen or left behind, it’s always better to only bring what you will wear to and from the airport.  There are numerous real life examples of individuals having their bags checked by security and items fall out, or are never placed back in the bag by TSA.  Don’t allow this to happen to you.)

-          Have updated appraisals completed every five years or so (With the value of precious metals and stones going up almost every day, an item can easily appreciate in the course of a year.  While there are some policies that build in coverage for this so you can replace the item, many policies only place a stated value coverage which does not allow any increased coverage for appreciation.  These appraisals will give piece of mind that you have the correct number assigned to this item and many times the jeweler you bought the item from will update your appraisals without any cost to you. )

While insurance policies are great things, some of these things are steps you can take to protect yourself.  What other ways are you managing your risk?

 

Photo courtesy of: http://www.adweek.com/fishbowldc/files/2010/11/diamonds-1.jpg?red=dc

Inside Job

Would you let someone into your home with permission to dig through your things without your direct supervision? People do it all the time with new housekeepers, construction workers, painters, etc. These people are usually recommended by friends or "reputable" companies, but the risk of theft still arises. 

Recently I've dealt with two situations. The first where someone was having some renovations completed and two of his jewelry items were stolen by the workers totaling about $22,000 (luckily one of the items was recovered). The second where this lady was very busy and was in desperate need of having her home cleaned before a large party. She didn't have time to supervise the cleaning lady she hired. A couple months later she realizes a significant amount of her jewelry is missing. 

You're probably thinking "But I'm smarter than that, I hire trustworthy people." Or better yet, "I'm home when they're working. What do I have to worry about?"

The truth of the matter is we have to depend on other people to help, but it's hard to be sure we can trust them. 

So how should you protect yourself? 

1) Hire from a recommended and backed service who does background checks on all their employees. 

2) Use referrals from close friends. 

3) Protect yourself with valuable articles coverage for your more expensive items that might be at home outside of your supervision. 

4) If you hire someone that is paid directly by you (an individual that does not work for a contract company or a cleaning company) make sure to do your research and reach out to your agent to see if you have employment practices liability coverage for domestics available to you. 

5) Always keep your valuables out of sight. 

6) Periodically spot check the work of the people coming to your home. 

Have you been victimized? What do you do to protect yourself? I want to hear from you!

The Risk Management and Agent/Broker Battle

So I recently had someone ask me if I had read any good articles about insurances agents thinking like risk managers. This really got me to thinking. After about a full hour of deep (Google) research I had come to the conclusion that it was up to me to put this together. 

Risk managers are typically used on the commercial side. It's an investment that a firm uses to lessen risk. They do this through the transfer, mitigation and avoidance of risk. So the question being posed to me of a personal lines agent thinking like a risk manager isn't something that I had consciously thought about. Subconsciously this is something I do on a daily, and even hourly, basis. 

The idea is that we should find the most cost effective, fully encompassing program that best meets the values and lifestyle of the client. The only way to do this is to have regular discussions with the client about how their assets and needs are changing. 

But what does this really mean? Every agent needs to be able to carefully listen for underlying themes and be creative. It's going to look different for every client, as it should. 

My best suggestions are

1) know the contracts of the companies you represent, inside and out. 

2) never be fearful to ask a client if they're happy with what you've put together for them. 

3) offer all possible options for a program. 

4) do your research before spitting out a yes or no answer. 

5) inform your client of the market, of the coverages they have and tell them what they're paying annually. 

6) learn as much as you can through continuing education classes. 

7) listen to your client. Don't provide them with the same program you give everyone, they don't want it and it's not good business. 

8) provide suggestions for ways that clients can completely avoid or mitigate risks. 

What are you're thoughts? How do you think like a risk manager? Maybe you're not even in the insurance field but there are certain things you do. 

Valuation Battle: ACV vs. RC vs. ERC

Maybe you’ve spoken to your insurance agent and they’ve mentioned some sort of loss valuation, such as actual cash value.  My assumption is you left that discussion thinking, “Great!  My loss will be paid.”  But what does this actually mean? When it comes to loss valuations, there are three common valuations: actual cash value, replacement cost and extended replacement cost.  Let’s break these down…

 

Actual Cash Value

Actual cash value provides the least amount of coverage in most cases.  Actual cash value is replacement cost minus depreciation.  I’ll go into replacement cost in a second, but depreciation is whatever percentage that your items, homes, cars, etc. are said to lose in value each year, just because they’re a year older and their “useful life remaining” is coming to an end.  Thus, if you have items that appreciate in value or don’t lose any value, you may not end up with a settlement that you like. 

 

Let me give you an example – In the type of clients that I work with on a day to day basis, they like their cars.   I have many clients with collector Aston Martins or Ferraris.  The idea of this is that these vehicles appreciate in value and if they hold them for a couple years, they’ll come out with more money than they invested in the car in the first place.  For easy round numbers, let’s say a car was purchased in 2008 for $100,000.  Now, it’s 2014 and there is a total loss because the driver lost control of the car.  In 2014 the car might cost $120,000 to purchase, but because it is now 4 years older there might be a depreciation of $40,000.  Thus, the loss settlement will be $80,000 and you will not be able to replace the car.  Obviously, this is a generic example, but this happens often when it comes to homes.

 

Replacement Cost

Replacement Cost is pretty simple.  The valuation would be what it would cost to replace the item with a similar item today.  There is no “depreciation” taken into account, because the item might be more or less to replace today depending on what it is.

 

Here’s another example for you – I have an iPad that was purchased for $500 in 2010.  In 2013, there is a fire in my home and the iPad is completely damaged.  I find my same iPad purchased in 2010 for $200 because it is three years later and other, newer models have come out.  My insurance company will give me the $300 to replace it.

 

In the example above regarding the high end vehicle, in 2014, the insurance company would likely pay up to $120,000 (depending on how the contract reads) or the limit shown on the policy if it is less than $120,000.

 

Extended Replacement Cost

Extended replacement cost is similar to replacement cost, but it is not capped at the limit shown on the policy.

 

Here’s my last example for you – I purchase a beautiful $500,000 home, my dream home, which I insure for $500,000 with extended replacement cost.  Being on the gulf, we see hurricanes from time to time.  Well, a hurricane sweeps through and takes out my beautiful home.  I’m devastated, but I have extended replacement cost.  What this means is the other costs associated with my home, that didn’t come along with the previous owner such as debris removal, cost of labor increasing, cost of materials increasing (all because most of the other homes in my neighborhood were also destroyed), are now relevant.  So a year and a half and $700,000 later, my home is back standing.  The insurance company paid out that total $700,000 even though my policy only showed $500,000.

 

If we go back to our first example regarding the high valued vehicle, we would be able to add in other costs that go with obtaining the vehicle, even though the replacement cost is set at $120,000.  This would include things like delivery charges, taxes, etc.  So maybe in reality, it costs $135,000 with all those extra costs and this valuation would pay that amount.

 

Not all companies offer extended replacement cost and the ones that do will want to go to your home, or see an appraisal or bill of sale for your item in order to verify their valuation is correct.  But, if your company offers it, it’s definitely the broadest loss valuation.

 

Another challenge for you… Check out your policy, talk to your agent.  The last thing you want is to find out which of these loss valuations your policy uses when you have a loss.  Insurance contract surprises are not good at the time of loss.

Say My Name: Named Insured Status

What's in a name? As it relates to an insurance policy, a lot.

If you're actually to pull out your insurance contract and read the definitions, you'll find a definition for "named insured". This is basically the person named on the policy as the owner. It can be multiple people (usually a husband and wife), a single person or a company (in the case of a commercial policy). 

So, why is it important to make sure the named insured is correct on the policy? A lot of policies limit or even eliminate coverage for non residents. So think about this, a family lives in Texas. The husband has a job transfer that temporarily relocates him to Florida for a year. He moves and his wife and kids continue to live in Texas until he returns. While he is not living in the house, if he is not listed as a named insured on the insurance policy, he could be excluded from liability coverage. This is also true in divorces or separations. If a spouse moves out, there could be a gap in coverage as it relates to liability and property coverage. 

The other place to closely review named insured status is as it relates to vehicles. Who owns the car? What entity owns the car? That is who the named insured should be. So, if you use a company that bundles all the autos in the household into one policy, make sure that the named insured matches the owner on the title of the car and if it doesn't, then you'll probably need to have your agent or broker write a separate policy each of the vehicles owned by separate owners or entitles. 

And finally, what about umbrella or excess liability coverage? The umbrella policy should match the underlying policies. This will insure that coverage will be seamless in the event of a large liability loss. 

In some cases, you will put homes or cars in the name of a trust, LLC or LP. Some carriers will cover this under a personal lines policy, but will list an individual or married couple as the named insureds and the trust, LLC or LP as an additional insured. There is a difference between additional insured and named insured, but that is for another time. What's important in this post is being sure both spouses are listed as the named insured regardless of the additional insureds. 

So, moral of the story? Review your insurance policy. Make sure the owners match up with the named insureds and both spouses are listed. There are special cases where only one spouse will be listed, and your insurance agent or broker can speak to you more about this. 

Ignorance is Not Bliss: Homeowners Special Limits of Liability

What is your most valuable real asset? I'm not talking about your family, your personality, your job, etc. Some people might answer that question by saying their home or their auto, but what about items that are smaller or easier to be lost, stolen or destroyed? For example jewelry, fine arts, oriental rugs, antique furniture, silverware...?

These items typically have limited coverages on a homeowners or renters policy. While you see a limit for contents or personal property, within the contract you will find special, lower limits for these categories. I'm going to have a lot of insurance agents or brokers upset with me because I might be creating more work for them, but I challenge you to pull out a copy of your contact and look for a section called "special limits of liability." This will provide you with exactly the limits that your policy is subject to; if you can't find it reach out to you agent or broker, if they can't find it or you don't know who they are, it might be time to find a new agent or broker.

Now let's talk about a solution. Obviously you want to keep your valuable items out of harms way (jewelry in a safe or vault, fine art and furniture out of direct sunlight, maintain an active centrally monitored fire and burglar alarm), but is there an insurance solution? Are you surprised to hear there is? Probably not. 

It's called a collections/valuable articles/personal article/inland marine policy/rider/floater. Whatever the insurance company decides to call it, they all serve the same purpose, to protect those items (and more) mentioned above. These policies are typically inexpensive depending on the category of the item you're looking to cover and a lot of times you'll find that they are available without a deductible. 

There are two ways to provide coverage for these items, blanket or scheduled. 

Scheduled coverage is where each item is specifically listed on the policy with a description and a value (usually determined by an appraisal or bill of sale). So, if you were to encounter a covered loss, the company will pay up to the limit that is shown to replace it (some companies offer a cash out option where you are not required to replace the item, and some companies offer an extended replacement cost option if the value of the item appreciates). It is especially important to remember that scheduled items should have updated appraisals every couple of years as the value of art, gold, silver, etc. is increasing dramatically year over year at this point in time. 

Blanket coverage, while not offered by every company, lists a limit for each of the chosen categories. You are not required to advise anything to the insurance company about the items that are being covered under this type of collections policy, but there may be a per item limit. What this means is if you have a per item limit of $10,000 and you have a covered loss of an item worth $12,000, the company will only pay the first $10,000 for any single item (not a single occurrence). Some companies have a higher rate for blanket coverage, so typically if you're looking to pay less premium you'll want to look toward scheduled coverage. 

My guess is following this information, you've got some work to do! Good luck! Please feel free to post any questions, comments or concerns. 

Photo curtesy of

http://www.123rf.com/photo_5855575_closeup-of-wooden-treasure-chest-with-valuables.html

Constructing Safety: Home Construction Risk Management

Construction season is at different times of the year for different parts of the country, but in Texas (specifically southeast Texas) it's October. Within the last month I've had two friends and four clients who have started construction projects for a new home or renovations on an existing home. So let's address these two situations separately because for risk management and insurance purposes they will be handled that way. 

First, let's start with new homes. You're looking for a contractor that you can trust. How do you know they're good? How do you know they are properly covered?

1) Ask them for recommendations. Most contractors, especially if they're good, will have clients who can or have provided them with a recommendation, just as you would see with a job interview process.

2) Request to drive past another job site if they have one. This way you can see what the quality of the work is while it's in progress. 

      Have they left tools out overnight? 

      If the site's unattended, did they leave windows open? 

      If work is being done, are proper safety measures being taken? 

      Are the workers wearing gloves while stapling? 

      Is there someone holding the ladder while another person climbs to the roof?

      Where is paint or stain stored when it's not being used? (This is a huge fire hazard. I personally have see a situation where the house was almost complete but due to poor storage of paint in the garage, the entire home burned down.) 

3) Ask to see certificates of liability insurance providing accurate limits and waivers of subrogation. The accurate limits speaks for itself, but what is a "waiver of subrogation"? According to Investopedia, a waiver of subrogation "prohibits the insurer from attempting to seek restitution from a third party who causes any kind of loss to the insured." And now a translation, if there's a loss (typically liability loss) while the home is being constructed, the general liability insurer will not look to the homeowner for payment of the claim, rather the insurance company will pay the claim. This protects you if the builder or insurance company seems to think you're at fault for whatever reason. 

4) Do a "Google" search of the company. A lot of times you can find reviews online and while some may not be valid and most may be negative, this can give you a better idea of any issues they have had in the past. I don't recommend leaving it at that though. Ask the contractor about it, why they had these issues and what they have done to avoid them moving forward. Issues are going to happen and the true character of a company will show through in how they dealt with it. 

5) Make sure you have a builder's risk or course of construction policy in place. I'm not going to go into the differences between those policies at this time, but you are able to secure this coverage through the builder or you may even be able to do so through your insurance broker. 

      (One note to protect yourself if you have a builder's risk policy, if you start moving ANY personal property in the home - a couch, a bed, a lamp, etc. - the insurance contract from a builder's risk policy I voided and the insurance company will not pay the claim. Make sure the day you begin to move anything in you have a homeowners policy in place.)

Now let's look at updates to an existing home. What should you consider? Obviously all the information above applies in this situation as well, but there are a couple of other things you should consider. 

1) If you are living in a portion of the home during construction, make sure you keep your doors to that portion of the home locked and your alarms active. While you hope you can trust the workers who are updating your home, I recently had a client who had a significant amount of jewelry stolen from a construction worker doing updates. Additionally, you want to be sure if there is a fire in the portion you're living in the alarm sounds so you're able to get out safely. 

2) Regardless of how much or little work you're doing, talk it through with your insurance broker. If your just painting or updating a room, they'll likely tell you that your policy is okay, but if you're adding square footage, moving walls or making structural changes, they'll likely have to notify the underwriter for approval. If you don't talk to your broker and there's a loss, it's very possible the insurance company could deny to pay the claim. So then you've been writing checks for nothing and no one likes that!

3) Once construction is completed, review your homeowners dwelling limit shown on the insurance policy. It's likely that it needs to be adjusted. Most companies can help you out with this. This is a very important step because a lot of the carriers will require your home to be insured for at least 80% to value to avoid any penalties if there's a loss by something called a coinsurance clause. 

Now that you've got an idea of a couple items to consider, get to work! Your hose isn't going to build or repair itself!

As always, please share your thoughts and comments.  Happy construction season southeast Texas!

Some information sourced from

http://onswipe.investopedia.com/investopedia/#!/entry/,5228a3d9da27f5d9d0177eb2

Photo curtesy of 

http://adamcowherdconstruction.com/services/home-builders-springfield-mo/