What Do You Mean – I’m Not Getting Paid?

After all your planning, estimating, bidding and hard work, the General Contractor’s Compliance Department says you are not getting paid.

Why? Your insurance doesn’t match their requirements. You call your insurance agent and they say- what?

How does this happen? Typically it is a breakdown between your contract obligations and the insurance that you purchased.

It’s Just a Certificate of Insurance

Insurance is difficult to understand and a high expense factor to your business. Many contractors believe that as long as they have general liability and workers’ compensation coverage that is then put onto a Certificate and sent to the general contractor that they have complied with their contract. That is simply not true. A Certificate is a reflection of the coverage purchased by you. The insurance agent you work with must have specialized knowledge about the insurance needs of contractors. The agent must be able to communicate that to you properly and you must purchase insurance that matches what you are agreeing to in the contract. It doesn’t do any good to demand that specific language appear on the Certificate unless it is supported by the insurance policy. Some insurance agents will put anything on a Certificate to keep their client happy. That works short-term but if a construction defect claim arises, you could lose your business trying to pay the defense costs for the General after the insurance company denies the claim. The Certificate is a summary sheet – the important part is what is attached to the Certificate, such as the Additional Insured endorsement. An endorsement is a change to the insurance policy and without that information, the Certificate is useless.

It Starts With The Contract
Check the bid specification requirements to see if the General Contractor has listed any insurance requirements.   Your submission should show the types of insurance coverage you carry, including the limits of insurance; the additional insured endorsement that you can provide; primary and non-contributory liability insurance; waiver of subrogation on the general liability policy.

After you receive the work order, review the insurance requirements section.  Send a copy of the requirements to your insurance agent and have a discussion.  After you do this a few times, it will get easier, I promise.  Check the insurance documents to verify that they match the contract (NOT just the Certificate).

Liability Insurance Requirements in the Contract

Contractual Liability
This term means that if the GC and/or Owner get sued by an injured party as a result of the job or because the ultimate proper owner claims the property is defective as a result of the work performed, you will pay the attorney fees, court costs and any damages won by the plaintiff get to come out of your pocket.  But you have insurance right?  Well, sort of.  One hundred percent of the time, you are agreeing to pay for every type of situation and you purchase insurance with many exclusions removing coverage.  For example:  a subcontractor brings a fuel tank to the job site.  A worker runs into the tank with their forklift, turning the tank over and allowing fuel to run out.  Even if you are NOT the party that caused this mess, you may very well be called upon to pay the clean up expenses.  This particular claim cost more than $900,000 to clean up and all of the subcontractors shared in the expense on behalf of the GC and Owner.  Your general liability insurance will NOT pay for this claim.  You will.

Additional Insured – General Liability Insurance
Often the construction contract will require a specific endorsement, CG 20 10 11 85.  This November, 1985 edition date is not always available.  You insurance agent will have to place coverage with an insurance company willing to offer this coverage.  That will almost never happen if you are performing residential work, but can happen if you are a commercial work contractor.  Caution:  because this endorsement is not common, it means you have limited access to the insurance marketplace and your insurance premium will go up.

I spoke with an insurance agent earlier this week who was trying to cope with an Additional Insured requirement that stated the following:
“The ownership entities of all projects under contract and their respective assignees, members, partners, shareholders, directors, officers, employees, construction consultants, and agents are additional insured solely in regard to work/services provided by the named insured.”
The insurance company was unwilling to add this language to the subcontractor’s general liability coverage and the GC was holding up a $40,000 payment until they received a Certificate with that wording.  Look at it this way, you are being asked to hand your insurance coverage over to the GC AND whoever is their construction consultants and agents.  This makes no sense.  The first call by the insurance agent to the GC resulted in the agent being told – ‘what’s your problem – we get this wording all the time’ but could not provide a copy of an endorsement where this had actually happened.  The agent then asked for a copy of the construction agreement and upon discovering the requirement was not in the contract, called the GC’s office again and pointed this out; the requirement was removed and the contractor received their payment.
This situation could have been avoided entirely by a review of the insurance requirements by the contractor with their insurance agent both of whom would have known what to do.

Final Points
Hire a knowledgeable insurance agent with expertise in construction.  Have a discussion with the agent about the type of requirements that you are agreeing to in your construction contracts.  Buy insurance that matches those requirements as closely as possible.

Written by: 
Marjorie Segale (AFIS, CISC, RPLM, CIC, CRIS, ACSR, CISR) 

 

Why Do Insurance Buyers Buy?

Or Why Do Buyers Buy From Other Agents

I received a great question the other day.  One that very few agents are willing to ask. I am hoping all of you will read this answer and keeping sending me your thoughts. You can reach me at tom@insurancecommunitycenter.com

Bill, emailed me the following:

“I have often gone into an account thinking I have the best possible quote I can’t miss this deal, only to get a phone call saying that another agent beat my price. This has happened recently on three separate occasions this month alone and I am getting battle scars. I know I have the best deal for them but I can’t seem to get that across effectively. Are insurance buyers just dumb or is our product just too complicated? What can I do to change the result and win some of these accounts?”

At first glance this appears to be a pretty straight forward question with a fairly straight forward answer.

I would be willing to bet that this agent sells on price most likely spreadsheets competing quotes and uses a proposal system that is very complicated. My guess is you’ve concluded that already.

But as I read the question again started to think about alternative questions ““Why do Buyers Buy?” and “Why do they buy from certain agents?” This might be a far more valuable question to answer.

Anthony Robbins, the life coach guru, will tell you that there are three powerful motivators for people to buy:

1. Pain – When I experience pain and realize I need relief; I need to get away from my pain.

2. Fear – I can visualize a pain that I don’t want to experience and I fantasize about how bad that future experience might be. I become fearful about the potential pain and take action based on my fear. I become willing to buy a product or service that will help me avoid my fantasized pain.

3. Gain – A future state that I see as better and that I want to attain. This can be mental, financial or physical future state.

Pain is the most powerful buying motivation because you will sacrifice and make investments based on the idea that it will remove pain. An example of an industry that sells based on the PAIN motivator, the entire pharmaceutical industry is based on this concept.

However, the Insurance Industry is based on the idea that people will make changes and investments to avoid FEAR. Fear that their lifetime of hard work can be destroyed by a fire, windstorm or earthquake. Fear that a law suit could take everything away even if they are not at fault. Fear that governmental regulation will put them out of business.

To succeed, figure out what pain or fear you can fix with your solution. Then target market to the potential people who might have that pain or fear and who might be willing to pay you to solve their problem.  But understanding buyer motivation is only half the issue, you must be able to communicate your solutions. If you skip directly to providing a price quotation you are missing the entire buying motivation of solving a PAIN or FEAR.

Here is some information that may help you see more clearly Why Buyers Buy.

The statistics quoted come from a comprehensive study developed from surveying several thousands of buyers across multiple industries. The study was developed to answer one question; Why do corporate buyers buy? We felt we could get the answer by simply asking them.

What do buyers actually say are the reasons they buy, we will contrast that with why agents say buyers buy. When you poll agents about the reasons their clients made a purchase decision 89% of agents state that Price was the number one factor. This will surprise you but those agents are 100% wrong according to the actual buyers!

Buyers give four primary reasons for making their purchase decision:

1. The quality of their relationship with their agent 54%
2. Strength of Carrier /Agency    19%
3. Product features and applicability    18%
4. Price & Terms       9%

This is extremely interesting because of the vast difference between agent’s opinion and that of buyers. In fact it is almost exactly opposite. The real answer makes me wonder if the answer from an agent, that he lost the account because of price isn’t more a method of ego protection. We as agents have a difficult time facing the fact that perhaps another agent may be more knowledgeable.

On the converse may be a tendency in the response to answer that a buyer made their decision based on factors other than price for the same reason. All I can say is taking both motivations into consideration and adjusting the numbers you still get an incredibly wide gap.

I can only conclude that in reality it is great news for agents. We are obviously highly valued by our clients if we bring something to the table. Once we develop a relationship based on trust and knowledge they are very difficult for your competitors to compete with you. But, let’s not stop here; we need to go down another layer.

What we need to explore is what does it really mean when a buyer says his primary purpose for making the buying decision he did was because of the quality of the relationship they developed with their agent.

Here is a breakdown of what buyers look for:
1. Knowledge –
a. Knowledge of their industry
b. Knowledge of their needs
c. Knowledge of Insurance
2. Professionalism – Agent takes a unique role
3. Value – Agent provides Value beyond the policy
4. Buyers say the agent “Puts my needs first, before his own.”

Here is the exciting news; all of these attributes can be learned. Notice there is nothing on this list about being a great golfer, or the friendliest guy in the bar. All of them have to do with knowledge. You can learn how to become this agent. You can build a very successful career by committing yourself to learning. I’m not talking about getting your CE credits each year and thinking that’s enough, that’s the minimum standard to keep your license. I have a difficult time imagining a buyer saying “one of the critical reasons I made the decision I did was that the agent had a license.” It’s simply not enough.

The Insurance Community University has a complete course selection including different learning modalities, testing facilities and CE course capabilities. You should have an educational plan for yourself and every person in your agency. If you do you and your agency will be generously rewarded for your time and dedication. As a great agent I know likes to say “Knowledge = Bucks”!

Written by:
Tom Jackson
Managing Director, Insurance Community Center

 

Errors & Omissions Claims Management

It Doesn’t Get Easier.

The producer gets a call from a new prospect.  What they want is simple enough:  General Liability coverage with $1,000,000 per occurrence and $2,000,000 Aggregate and Workers’ Compensation on a minimum premium basis.  Since this is a local account, the producer makes an appointment to go out to meet with the prospect.  Turns out the prospect is a small artisan contractor that performs some fabricating in their work shop that is separate from their residence.

The producer discusses the following:
Where is the shop insured?  Answer:  Through my (direct writer) homeowner’s policy and no, I don’t want a quote.

Do you want coverage on your shop equipment and tools that you might use on the job site?  Answer:  Sure, give me a quote and depending on the price, I might take that coverage.

If your shop burns down, could you lose income and have to pay extra expenses to keep going?  Answer:  Well, I don’t see that happening so don’t give me a quote.  I just want the liability, workers’ compensation that my contracts require and I might take the tool coverage.

The producer goes back to the office, prepares a quote, provides it in writing and it is accepted.  The producer has the insured fill out the application, sign and date it.  A policy is requested, received and sent to the customer along with a coverage summary.  The policy is cancelled three months later for non-payment of premium.  The customer contacts the producer and requests a reinstatement.  The insurance company was unwilling to do so and a second carrier was contacted, a quote provided and the whole process is performed again in exactly the same manner.  This time the payments are made on time.  Six months later, the shop burns to the ground.

Result:  The direct writer denied the claim for the shop due to business use and an exclusion in the homeowner’s policy.  The customer claimed that he had requested that coverage, but nothing in writing.  The customer then filed an E & O claim against the commercial coverage agency, claiming that he thought his coverage included business income and extra expense coverage, even though nothing in the proposal or coverage summary indicated that coverage had been purchased nor anything to indicate the coverage request on either of the two applications the insured completed.

Did the agent do anything wrong?  No.  Could the agent have taken the step of advising the customer of the lack of coverage for the building and or business income coverage?  Yes.  However, in no way had the producer indicated any special knowledge or established any special circumstances that would indicate a higher degree of care other than the ordinary duty of an insurance agent required to place what had been requested.

This case is still in litigation, thus the final result is not yet known.  However, as you might imagine, this case has taken time from other agency business and has thus impacted the overall earnings of the agency.  This really is one of those cases that the reason for E & O coverage exists.

No matter how hard you try – sometimes it is just not enough.  It can get discouraging, but don’t give up.  You really can reduce your exposure and still keep a viable business moving forward.

 

Errors and Omissions Coverage for Insurance Agents and Brokers

Errors & Omissions coverage for insurance agents and brokers up until recently, has been readily available with flexible terms and conditions.  This coverage is beginning to trend the other way.  Why?  Part of this trend is natural market forces at work.  The deeper part of this trend is due to increased frequency of losses.

Causes of the losses:
• The economy in general; individuals and businesses that cannot afford uncovered losses attempt to place the economic results onto their insurance agent or broker
• Insurance companies are becoming less resistive to looking at their own agent as a source of recovery for bad faith litigation expenses
• Agencies are becoming more focused on transaction and data management, using less staff to perform more of those functions and less emphasis on consultative, knowledge based performance by their producers and support staff.  In addition to this, is the increased use of data transfer by receiving information from clients over the web; transferring that information by data links and receiving new policies and renewals by data upload.

Agency Risk Exposures
The current economic downturn has dramatically affected a significant number of an agency’s customer base.  Most agencies have lost revenue in the past few years as many of their customers have either closed their doors or experienced reduced sales and/or payroll.  In turn, the typical agency has been forced to reduce their own expenses and staff layoffs have happened all over the country.  Often those layoffs have affected some of the more experienced (and thus higher priced) personnel, resulting in less knowledgeable staff now being fully responsible for the account.  So where does that leave the agency?  Let’s take a look at the different areas of exposures.

• Documentation

E & O Insurance Coverage

This is the key area that must be addressed within the agency.  Do NOT assume that this is happening.  As Ronald Reagan so famously said, “trust but verify”.  In order to defend yourself against an E & O claim, you must be able to show proof of the following:

1. The coverages requested by the customer.  This means that you must have a signed bind order or coverage proposal in file.  No excuses.

2. The application for coverage must match the customer’s coverage request and signed by the customer.

3. The coverages must be reviewed within the agency before sending to the client.  This means a little more than just checking off the forms and endorsements.  For certain, it means that you must have a complete copy of the policy in the system.  Many carriers are now uploading renewals into the agency management system, but do not include the forms and endorsements.  You must have a procedure in place to obtain these forms and endorsements for review.

4. Change orders must be confirmed to the customer in writing or a written request received from the customer.

5. Customer claims must be documented and transmitted promptly to the insurer.  If it is a liability claim, have a procedure of notification to the appropriate primary policy and tender of notice only to the excess carrier(s).

Keep in mind the following truism when setting up an internal agency audit process:  The file must speak for itself.  If it is not in the client’s file, it doesn’t exist.  You cannot win a case without supporting evidence and just saying that you discussed the issue with the client on a particular date will not prevent a lawsuit, nor will it have weight with the court.

If your agency or producers have created a customer relationship that is more than just placing the coverage requested by the customer or have held yourself out to have a special program or special knowledge, then you must go beyond just documenting what the client asked for.  You must review their exposures and offer coverage solutions or other risk handling mechanisms.

• Customer Review
Train your producers and agency managers on the type of customers that are desired as well as the type of customers that must be avoided.  All of us at one point or another have had a suspicion that all is not right about a particular customer.  For example:  a customer that all of a sudden asks for a particular insurance coverage when in the past has wanted only the bare insurance basics or the customer that is constantly late in their payments.  You really don’t have to write every customer that approaches your company.  It pays to be a little selective.  Have a procedure in place to deal with these issues and it should not be based upon the size of the customer or the amount of commission received.

• Security of Information
With the advent of technology comes growing risk of privacy suits due to the loss of private information.  Agency owners need to review with their IT person or department exactly how much encryption is being used and how secure are the transmissions.  Many applications are being completed online and there is no means to obtain the customer’s signature.  Fix that problem as soon as possible.  Digital signatures are, for the most part, legally acceptable, but without that signature, many carriers will not rescind coverage in the event of misrepresentation and will turn to the agency to compensate them for the bad faith claim.  Check your website for encryption of information as well as the customer portal for accessing their policy information.

• Certificates of Liability Insurance
This continues to be a litigious area for agencies and a growing area of claims are those arising from the recipient of the Certificate and not from just the agency customer.

Ways to manage this risk:
Have a master Certificate created by a knowledgeable insurance person in the agency.  The person responsible for actual issuance must then use only the master Certificate.
Never, ever put anything on the Certificate that is not supported by policy language.
Use the most current version of the ACORD Certificate.
Do NOT change the notice of cancellation on the Certificate. The newer editions by ACORD no longer have a place for that improper action, but we have seen Certificates where the incorrect cancellation information is being placed in the blank “operations” box.

• Remarketing of Coverage
Agencies today are remarketing everything as it renews.  Without a thorough understanding of their current coverage, it is impossible to be aware of reduction of coverage in a different policy through a new carrier.  Should a claim arise that would have been covered in the prior policy but is not covered in the new carrier’s form, the agency will have a hard time defending themselves if they have failed to point out (in writing with a customer acknowledgement signature) that reduction of coverage to the customer.

Professional Insurance agents work hard to understand their clients’ risks and exposures to provide a comprehensive insurance program to transfer those risks.  Some insurance agents identify means and methods of loss control and risk reduction.  Those same principles must be applied to their own business.

Written by:
Marjorie Segale (AFIS, CISC, RPLM, CIC, CRIS, ACSR, CISR)