Fire lesson: Full knowledge of policies stands out as the toughest business insurance hurdle

insurance-fireSteve Mack, who owns the Lone Duck Family Campground in Cascade, still is sorting out his business insurance claim after the Waldo Canyon fire.

His residential insurance was straightforward and easy to understand. He said his insurer worked with him and explained the policy and volunteered information about what Mack and his family needed to do in order to be paid. Though he’s heard horror stories from other homeowners, the residential process was relatively easy for him.

The corporate insurance policy is not so straightforward.

“They sent us one sheet of paper and said, ‘Tell us what you lost,’” Mack said.

The experience has been painfully frustrating for Mack and his family.

“You feel like you’re in a battle with them,” Mack said. “They don’t come in and say ‘this is what’s covered and this is what isn’t covered.’ They wait until you make a claim and then shoot it down. It’s like going to the doctor and he sees what’s wrong, but doesn’t tell you.”

The frustration is common among area business owners who were impacted by the fire, said Aikta Marcoulier, director of the Colorado Springs Small Business Development Center at the University of Colorado Colorado Springs. A lot of business owners came to the center during and after the fire looking for help understanding their insurance policies.

Many business owners didn’t know what coverage they had or how to file a claim, nor did they understand all of the intricacies of their policies.

There are many layers to business insurance, which covers everything from worker’s compensation to liability, auto use for work, property damage, theft and business interruption income loss.

“The thing is an inch-and-a-half thick,” Mack said. “If you think you’re going to read the whole thing — good luck.”

The center brought in specialists like John Putnam, who owns Putnam Assurance and Risk Services, to help business owners sort through their policies after the fire. He has decades of experience in the insurance industry and now teaches agents.

The fire highlighted a need in the business community, Marcoulier said. And the center will host a business insurance class to help small business owners better understand their corporate insurance policies and what coverage they need in order to best protect their interests.

Loss of income

There are four major areas of coverage business owners need to make sure they have, Putnam said. Property insurance is an obvious one. If they have employees, worker’s compensation insurance is mandatory. Auto insurance is essential if they’re using a vehicle for work-related tasks. Liability insurance is key to protecting business owners against lawsuits for unintentional negligence.

“The area that caught people by surprise was loss of income,” Putnam said. “If your business had a covered direct loss, then insurance would pay for loss of business income.”

The tricky thing there is that most businesses didn’t have any direct property losses that would allow them to claim loss of business income, Putnam said.

“We had an evacuation and then we closed down Highway 24, so businesses were out of business for a week and there was no coverage for it because there was no damage to the building,” he said.

Even if it were covered, the formulas that insurance companies use to calculate business income loss are complicated — and understanding how it works can be a challenge in itself, Putnam said.

Randy Geving, who owns Six & Geving Insurance, said business interruption insurance is something business owners can add to their policies, but in order to collect, certain circumstances have to play out. The standard policy will pay out if there is a 72-hour mandatory evacuation, Geving said.

“Unfortunately, most of the businesses around here were evacuated for less time than that,” Geving said.

Certain carriers will allow business owners to pay a higher premium for a shorter evacuation threshold for business income loss — 24 hours or even less.

For certain businesses like hotels and restaurants, manufacturing and other service industries, business interruption insurance is one of the most important pieces of the insurance equation, Geving said. If they’re out of business for even a short time, the income stops, but the expenses don’t. That’s a quick way to hurt a business. That’s why it’s an important type of insurance to have.

“We try to look at the worst-case scenario,” Geving said. “What if this happened during the height of your busy season — what would your loss of income be?”

While a key piece of the business insurance pie, loss of income coverage isn’t that expensive, Geving said.

“If business owners have a claim, it’s usually a big one,” he said. “But the incidence of it is low.”

Understanding business policies

Mack said he used to have an insurance agent who would come out to the campground and walk through the policy with him, explaining everything in it.

“Now they send us a big binder and say, ‘let us know if you have any changes,’” he said.

That’s one of the reasons for Putnam’s upcoming insurance class at the SBDC. Business owners don’t know what’s in their policies anymore, what coverage they have and don’t have, what they need and might want.

Geving said it’s unfortunate, but common.

There is a lot of coverage built into most policies that business owners probably don’t even realize they have, he said. There are protections for accounts receivable and stolen equipment like laptops in almost every policy as a standard. The good thing about the industry is that it offers more protection for less money. The bad thing is that the clients never make claims because they don’t know they can.

“There isn’t a lot of communication with the agent or broker anymore and these policies renew year after year without any interaction,” he said.

A lot of business owners go online to buy policies and don’t even have agents they can discuss their policies with. Part of it is the agents and brokers, but he said business owners should ask to sit down and have their agents explain the policies they’re buying. Good agents and brokers will do it.

The lack of communication between policyholders and their agents has pushed a lot of business owners like Mack to hire third party insurance negotiators to handle their claims.

“That is pretty common,” said Vince Plymell, spokesman with the Colorado Division of Insurance.

A lot of business policyholders aren’t confident enough to manage their own claims and choose to work through firms like Loss Analytics, based in Floridawith offices 22 cities around the country.

CEO Troy Payne, who is based in Denver, is managing Mack’s case. When his dad started the business 33 years ago, it was a service just like an accountant offered. Businesses and homeowners hired the company to manage the claim to avoid hassle, not because they didn’t think they could navigate the rough waters on their own.

“We’ve evolved over time,” Payne said. “The way policies are set up now, they are prone to more misunderstanding. When you purchase your policy, it’s not really clear what you’re purchasing and what’s covered. If you start off bad, it’s probably not going to end well.”

As policyholder and agent relationships have devolved, Payne said his business has grown. It seems like insurance has become a labyrinth when there are claims, and weeding through the red tape and making sure policyholders get a fair payment has become harder and harder.

“There’s really very little business owners can do,” Payne said. “Even if they read their whole policy, they’re still not going to understand it.”

If you go

What: Small Business Development Center class on understanding business insurance

When: 9 to 11 a.m. Wednesday, March 6

Where: Small Business Development Center on the University of Colorado Colorado Springs campus

To register: Call 255-3844

Cyber concerns spark new insurance coverage

As cyber security has become a headline-maker in recent years, the insurance industry has kept up.

“One of the newest areas of insurance we’re dealing with is cyber liability and the idea of protecting your data,” said Randy Geving, owner of Six & Geving Insurance. “That’s a huge area of exposure for businesses.”

He said he’s talked with several clients recently who are interested in adding coverage for their data and cyber liability to their business policies.

He hasn’t seen any claims himself, but has been reading in trade magazines about businesses fighting liability lawsuits over spreading viruses and compromised client data.

“We now have policies for that kind of thing,” Geving said. “It’s a growing area of the insurance industry.”