An AgencyEquity Exclusive
The Texas fertilizer plant explosion killed 14 people, injured over 200 and leveled about 70 homes. But the plant operator only had a million dollars of liability coverage. This brings up a number of questions that your agency should be asking itself:
- Should your agency be taking on risks where the principals or executives refused to agree to insure for a reasonable coverage amount?
- Have you evaluated your E&O coverage in recent years to determine you if have adequate coverage for the risks you insure? Will this amount of coverage make your agency as bulletproof as possible—and will it prevent potential loss of your agency or bankruptcy due to an under-insured client?
What is your agency policy regarding proper insurance of a risk? Do you take these risks or do you walk away from them? Many agencies have coverage check-off forms that they require clients to sign, and this can be a good tool. However, does this process still make sense for clients who refuse to understand the importance of getting adequate liability coverage? Does your agency look at the front end of this deal? Or do you look at the long-term problems of those who do not take coverage or risk management seriously? These are questions you need to ask yourself .The more questionable risks your agency takes, the greater the risk to your own agency. Does your agency really need these risks and problem clients? Will you come out ahead in the long run with them? Probably not!
How about your E&O coverage? Have you seriously evaluated your coverage amount and the ability to protect your agency should your client have a catastrophic event? Many carriers require a minimum of a million dollars in E&O coverage—and as a result, many agencies only carry a million dollars. If your agency is worth anything and it provides you with a good living, then remember that you are just one claim away from losing it, as well as other assets or a good percentage of your earnings. Are you ready to find a new job or downsize your quality of life due to a single claim? Remember: coverage amount is what you are preaching to your clients. So why not preach it to yourself? Are you falling into the same premium trap as your worst clients, with the risk of losing everything? How much would it really take to protect your agency and insure against risks? In most cases, 1 million dollars will probably not cut it—not even close. Consider an umbrella policy—especially if you are insured under a program that only provides a million dollars of coverage.
The explosion in Texas certainly is not a common occurrence. However, even if the impact amounted to merely 5% of the casualties and damage, the client would still need significantly more than a million dollars of coverage. Moreover, an agency E&O coverage amount would need to be significantly more than a million and even two million won’t cut it, if an agent were to be found liable for coverage malpractice. Immediately addressing both of these issues may cost you some accounts and higher E&O costs, but the alternative can cost you everything.