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Insure This By Bill Velin bill.velin@wellsfargo.com
Be a Smart Insurance Buyer
he old adage “the cheapest insurance isn’t always the least expensive” has never been more true than it is today. The ultra-competitive nature of the insur- ance marketplace today has led the insurance companies to offer many cov- erages that were not offered in the past, as well as adding exclusions and limita- tions that take out coverages that you thought you had.
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The smart insurance buyer knows how to read his policy and where to look to find the coverages he or she knows is needed to protect the business. The poli- cies written for today’s automotive recy- cling industry are particularly tricky to construct and read due to the many dif- ferent and diverse exposures found in the typical recycling operation today. These exposures can range from dis- mantling and recycling cars and trucks to the sale of new and used parts to the sale of used cars and/or trucks, in addition to U-Pull-Your-Own yards and the recycling of scrap metal. These coverages all have idiosyncrasies that, if not covered prop- erly, could mean the difference between a claim being paid or denied outright. In addition, each of these exposures have different coverages including but not limited to property, general liability, and auto that all could contain exclu- sions or limitations that can render your perceived coverage very restrictive or make it very broad, depending on the carrier and the policy forms. For exam- ple, just a simple property policy for a typ- ical recycler can be a trap when you think you are covered very well. That is because most property policies are written with a coinsurance clause. If the property policy, for example, has been issued with a 90% coinsurance clause, that means that the value you have your building insured for has to be at least 90% of what it would cost to replace after a loss. As an example, you have your building insured for $900,000
12 Automotive Recycling | January-February 2015
The policies written for today’s automotive recycling industry are particularly tricky to construct and read due to the many different and diverse exposures found in the typical recycling operation today.
at 90% coinsurance. A fire damages one portion of the building and the estimate to repair it is $300,000. AFTER the loss, the insurance company will come in and do a replacement cost calculation using normally accepted replacement cost analysis. Let’s say, for the sake of argu- ment, that they come up with a replace- ment cost of $1,200,000. The coinsur- ance clause will be enforced in this case, since you were required to have the building insured for a minimum of $1,080,000 (90% of $1,200,000). How- ever, you only have the building insured for $900,000, which is 83% of what you were required to have it insured for per the coinsurance clause ($900,000/ $1,080,000 = 83%). Therefore, you will receive only 83% of the $300,000 fire loss or $250,000 minus your deductible. You are not going to be a happy insured in this case, which is a perfect example of a situation where the cheap- est insurance is not always the least expensive.
Another prime example is in the garage liability section of the policy. Many recyclers perform mechanical repairs on customers vehicles. That means they could have several customers vehicles on their premises – sometimes overnight. This creates a “bailees expo- sure” for customers vehicles in your care, custody or control. If damage occurs to a customers vehicle while in your care, custody, or control, you want to be able
to assure your customer that you have coverage for the damage to his vehicle. However, even though you have a garagekeepers liability policy, you do not necessarily have coverage for your cus- tomers vehicle. That is because garage- keepers liability can be written in a number of different ways – from “legal liability” which covers damage to your customers vehicles that you be legally obli- gated to pay (i.e.: damage caused only by your negligence) to “direct primary cov- erage”, which covers just about anything that happens to a customers vehicle. Quite obviously, legal liability is much cheaper than direct primary. However, it may cost you much more in lost cus- tomers than you saved in premium for going with the cheaper option – espe- cially if you are not aware of what you are buying. Again here, the cheapest option will probably turn out to be more expen- sive in the long run.
It is more important than ever to find an insurance agent that is willing to spend time teaching you to become a better and smarter buyer. Once you learn to be a smarter buyer, you will not only save money in the long run, but you will sleep better knowing your business is cov- ered properly. ■
For more information on how Wells Fargo In- surance Services can benefit your business, contact Bill Velin at 800-328-6311, ext. 3039, direct 952-830-3039, or by e-mail bill.velin @wellsfargo.com.