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Hurricane season: Is your insurance ready?

The subtle nuances of an insurance policy can dictate whether or not you have coverage as a business owner. Business interruption is a prime example considering that a single word (direct) has the all encompassing effect of eliminating coverage for a loss you had assumed would be paid. Such is the case with other forms of insurance specific to the livelihood of your business. With the advent of the 2015 hurricane season, and by virtue of a consensus of experts in the field stating this year will be comparable to 2005 (Katrina), post-disaster is not the time to find out the limitations of your insurance policies. As a business owner, you spend countless hours with revenue projections, cost cutting efforts and financial/strategic planning to assure protection of your profitability. Then why not focus some of your attention on your insurance program?

Risk Management is the process of risk identification/assessment, limiting or eliminating risks, retaining risks, and as a last resort insuring risks. That is to say a company should absorb the financial exposures to loss first and then only insure for those events that could do irreparable harm to the company’s profitability. Through this Risk Management process, the final phase of insurance should also be scrutinized in order to prevent any unforeseen losses assumed to be covered. Since an insurance policy is a legal contract between the insured (business) and carrier (insurance company), both are bound by the terms and conditions. Can you trust that your agent and the insurance company have your best interest in mind? Years ago, a certain insurance carrier who shall remain nameless was notorious for their philosophy of finding ways to avoid paying a claim. Yet many companies bought insurance from this carrier because the agents either didn’t know or wouldn’t tell their clients. Is this action deserving of trust?

After all this is said and done, the insurance most affected by the catastrophic aspects of hurricanes boils down to your Property coverage. Specifically, this coverage should insure your physical facilities, contents and equipment. The latter may or may not be covered under this policy depending on the quantity and valuation of your equipment. But suffice it to say, coverage for equipment is not automatic. Sometimes property insurance must have an equipment floater (amendment) adding either a total insured value or based on a detailed list on file with the insurance carrier. In other cases, a separate equipment policy is necessary. Which do/should you have? Next in the line of terms and conditions involves the cause of a loss. Here insurance companies typically refer to coverage as either a

Named Peril or All Risk. Named peril refers to specific named cause of a loss (i.e. fire, wind, etc.), whereas All Risk covers all perils/events. In this case, both are subject to exclusions that even in the perceived All Risk form takes away specific events, usually flood as a start. Co-insurance is another condition to be wary of since it requires the business to value their property to at least that percentage (usually 80%) of value. This term forces accurate valuation to assure proper pricing. If however, the business valuation is less that the stated percentage, then loss payments are reduced proportionately. Finally, the payment of a loss is based on the stated method: replacement cost, ACV (actual cash value), FMV (fair market value), or a combination of these.

Hurricane season: Is your insurance ready? There are two ways to find out: using an independent source to assess your insurance program, or wait until after a loss. The choice is yours.