Great customer service involves helping clients to understand how their

insurance works. This helps to protect the client

and the insurance agency.

Customer Service Focus

By Catherine Trischan, CPCU, CIC, CRM, ARM, AU, AAI, CRIS, MLIS, TRIP

EDUCATION AS CUSTOMER SERVICE

What your commercial clients don’t understand about their insurance can hurt them and you

There are many areas where commercial clients’ understanding of their insurance coverage does not equal the reality of their coverage. This is a problem for the client, of course, because the expected coverage is not there at the time of a claim. This is a problem for the insurance agency because the client may allege that the producer did not properly explain the coverage or did not recommend the proper coverage. Great customer service involves helping clients to understand how their insurance works. This helps to protect the client and the insurance agency.

Here are some common areas where your clients’ misunderstanding of their policy can create problems.

Replacement cost coverage may not be enough to replace your building. The client who purchases replacement cost coverage on his building believes that, in the event of a total loss, he will get a brand-new building. We often describe replacement cost coverage as getting “new for old.” Replacement cost is usually calculated using a cost per square foot based on the construction, location, and features of a building. If a building is significantly damaged, though, other costs must be considered.

What if the town orders a building with major damage to be demolished? Now a partial loss has turned into a total loss. Unless ordinance or law coverage has been added to the policy, most commercial property forms will pay to repair only the damaged part of the building. Where will your client get the funds to replace the portion of the building that he was forced to knock down? And what if the building must be rebuilt differently to conform to more stringent building codes? This can be an issue in even small losses. Maybe your client will need to upgrade a sprinkler system or make changes to comply with the Americans with Disabilities Act (ADA). An unendorsed policy pays to repair or replace the building the way it was: something the town will not allow.

Let’s not forget, too, that our client may be shut down for longer than he would have been had he been allowed to simply repair the building. An unendorsed business income form will not typically cover this extended period of restoration. Ordinance or law coverage will help with all of this, but without our guidance, the client is unlikely to know that.

In addition to ordinance or law issues, what if the cost of labor and materials increases between the time the policy is written and the date of the loss? The cost of rebuilding and repairing property since the beginning of the coronavirus pandemic has increased dramatically. If the values on the property policy have not kept up with the rising costs, there will be inadequate limits to replace the property.

Educating your client about what can be done to enhance coverage so that the policy truly does pay to replace the building is one of the most helpful kinds of customer service.

Business income coverage does not replace income. Your client is a manufacturer that suffers a fire loss and is out of business for three months. During those three months, your client would have had gross sales of $1 million. The adjuster offers to pay $200,000. “Where is my $1 million?” asks your client. Business income does not simply pay to replace the lost gross sales. It pays the sum of continuing normal operating expenses and net profit.

What your client doesn’t consider is that during those three months many of his expenses stopped. He laid off many of his factory workers, he didn’t need to buy raw materials to manufacture his product, and his utility costs were lower than normal because production stopped. If he had been paid $1 million, it would have been a windfall. Not understanding how the coverage works, your client is frustrated and feels he purchased far too much coverage.

Educating your client about how business income works can help him to choose an appropriate limit of insurance and better understand what happens should he have a business income loss.

Tenants do not have coverage for most damage they cause to rented space. Your client rents a stand-alone building with a flat roof and is responsible, according to the lease, for removing the snow from the roof. The lease also makes the tenant responsible for repairing damage she causes to the building. Two feet of snow falls in a one-week period and your client doesn’t remove it from the roof. The roof collapses, causing extensive damage to the interior of the building. Your client submits the claim, expecting her Commercial General Liability (CGL) coverage to respond.

The problem is that most CGLs won’t respond. Typically, the tenant has only a limited amount of coverage for fire damage she causes to the building. We often refer to this as Damage to Premises Rented to You coverage, or by its older name, Fire Damage Legal Liability. Your client didn’t think about this because the lease required her landlord to insure the building. What she failed to consider, though, was that the landlord’s insurer might subrogate against her after the claim is paid. In many situations, this type of subrogation is permitted.

Helping a client to identify the exposures involved in renting space and to secure the proper coverage is a valuable customer service.

Blanket Additional Insured endorsements don’t cover everyone, and edition dates matter. Your client owns a large plumbing company and is thrilled. He just signed a contract for a big job and is eager to get started. He calls your office for a certificate of insurance and shares the insurance requirements from the contract he just signed. You are excited for him until you realize he has just agreed to provide a version of an additional insured endorsement that hasn’t been used in over 25 years (Owners, Lessees or Contractors—Form B, CG 20 10 11 85), which you know your underwriter will not agree to. You tell your client this and he responds, “But you said I have a blanket additional insured endorsement. Shouldn’t that cover everything?”

Insurance is complex, and it’s easy

to forget that clients may not understand the

things that seem so obvious to us because we work

with coverages every day.

The most current ISO forms for contractors are broad. If the plumber signs a contract with the general contractor and agrees to include numerous parties as additional insureds, the CG 20 38 12 19 does the trick for ongoing operations. The CG 20 40 12 19 takes care of the completed operations. One problem is that not all additional insured endorsements are this broad. Many cover only the entity that signed the contract with the Named Insured, for example. Carrier proprietary forms may also include additional restrictions and require that the additional insureds do certain things to get coverage.

With respect to the edition date, older forms like the CG 20 10 11 85 may provide coverage to an additional insured even if the Named Insured has done nothing to contribute to the loss. The current ISO forms do not provide this level of coverage, and many insurers are not willing or able to use the older forms.

Educating your client about the additional insured coverage he has and what can and cannot be added to the policy helps him to know what contract terms he can agree to. This kind of customer service can help keep your client from breaching a contract.

Contractual liability doesn’t cover everything. Your client, a security company, has an employee working in an electronics store during the holiday season. The store asks your client to sign a contract indemnifying and holding harmless the store for “any and all damages.” Believing a customer was trying to shoplift, a security guard drags the customer from the floor into the back room of the store. The security guard detains the suspect for two hours before deciding he was not shoplifting and lets him go.

The suspect files suit against your client and the store for false arrest and wrongful detention. The store demands indemnification from the security company, and the security company’s insurer refuses to cover the security company with respect to its obligation to indemnify. Your client calls and asks, “What about my contractual liability coverage?” What he doesn’t understand is that most CGL forms include contractual liability coverage only for certain bodily injury and property damage claims.

Educating your client about what contractual liability coverage does and does not do and encouraging your client to seek legal advice before signing a contract is the kind of customer service that most clients need and appreciate.

Customer service is about more than being pleasant and responding to inquiries and requests in a timely manner. Insurance is complex, and it’s easy to forget that clients may not understand the things that seem so obvious to us because we work with coverages every day.

When producers take the time to explain coverage and the importance of understanding it, our clients are getting the kind of customer service they deserve. It’s the kind that they feel good about when they buy a policy and the kind they’ll feel good about when they need to use the policy.

The author

Catherine Trischan, CPCU, CIC, CRM, ARM, AU, AAI, CRIS, MLIS, TRIP, is director of commercial underwriting for the E&K Insurance Group in Eatontown, New Jersey. She is also a National Faculty member of The National Alliance, speaking on commercial property and casualty topics in the CIC and CISR programs and in Ruble Graduate Seminars.