Questions you don’t want to hear…What coverage is NOT available in this policy?
What a loaded question! In insurance, it is impossible to find a policy that covers everything. When talking with your agent about coverage options, you must be very clear on what things are important to you and your business to be covered.
I recently worked with a prospect who had been having major claims issues over the past year. The client works with specialized equipment used to clean machinery in the oil and gas industry. One day, the client loaded his machinery onto his trailer and went about his shift like any normal work day. While sitting at a red light, he was rear ended and the machinery had been totaled.
You might think “Great, that’s what insurance is for! He files a claim, the insurance company pays him, and he buys a new machine!”.
Yes, he got paid for his machine, but like many property policies, his machine was written on an actual cash value basis. This means there was depreciation for the machine, so what he was paid would not cover the cost of buying a new one.
Depreciation is when the value of an item decreases over time. Since the oil and gas machinery had been used years prior, its value (what the insurance company paid) significantly decreased.
In addition, because of the specialized nature of the machine, he would not be able to easily pick up a new one. Even if he did have the funds for the oil and gas equipment, he would have had to wait an additional three months before receiving it.
So now, the client is out of a machine, does not have the capital to get a brand new one, and if he did have the capital, he wouldn’t be able to make money off the machine for 3 months. His total loss in revenue ended up being a permanent 25% loss at $400,000. In addition to the loss of revenue, he lost the contract with the company he was working for because he did not have the capacity to send another crew to the work site.
This prospect's experience is a great example of why it is important to work with an agent that understands the right questions to ask about your business when applying for coverage. In this case, I worked to find a policy for this client that provides business income with the property coverage.
Business income is commonly attached to property policies. In his case, the property coverage was an Inland Marine policy. Very rarely do you find it attached to an inland marine policy.
Inland marine cover mobile property - this could be tools, equipment, machinery, etc. as long as it is mobile. If he would have had this coverage originally, he at least would have had the funds available to purchase the machine.
I was able to obtain proposals that offered business income in various ways on the inland marine. The client and I again discussed what sort of coverage worked best for him and his business. As of now, he is unable to operate his business at full capacity, but is hoping to reinvest in the machinery soon, with this new policy in place.
The moral of the story, when talking to your agent, make sure you have an agent that is asking the right questions and you are telling them what is important for you to have covered. This can make or break your process if you ever need to file a claim.
If you would like to talk further about properly covering what’s important to your business, please fill out the form below.