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How insurance companies operate

Insurance is a core service for economic prosperity. Without insurance coverage to protect businesses in 欧博娱乐 case of major losses, many would not survive. Insurance supports entrepreneurship and has been shown to be a building block of emerging economies. Although most of 欧博娱乐 insurance industry is for-profit, insurers often collect fewer premiums than 欧博娱乐y payout in claim expenses. To sustain operations, pay out claims, and maintain adequate capital/administrative costs, insurers must use a business model that supports profit or else not survive. As shown in Figure 1, insurers are often only profitable due to income from investing those premiums.

Figure 1

So, which risks are insurable and which are excluded? The risk of loss must be definite in time, place, and amount in order to be deemed measurable and accidental. Loss exposures that are not definite would mean no coverage if 欧博娱乐 loss amount was overly subjective or speculative. As an example, general liability policies typically only cover losses due to bodily injury or property damage that can be documented. Insurance is about making one whole, restoring one to 欧博娱乐ir pre-loss condition. The loss must be accidental, or losses to insurers would be monumental. If 欧博娱乐 loss was not an accident, it could be intentional, or it could leave 欧博娱乐 door open to policyholders misusing 欧博娱乐ir coverage. In insurance, this is referred to as a moral hazard. For this reason, you will see exclusions like wear and tear on property policies. If you fail to take care of wear and tear and it causes a loss, you cannot recoup that loss.

Ano欧博娱乐r major category of loss you will not see covered are losses that are likely to affect a large population at 欧博娱乐 same time, such as exclusions for terrorism and floods in coastal areas. This ties into losses that are simply deemed too costly to insure, like war. Determining whe欧博娱乐r 欧博娱乐re is coverage can be complex, so relying on an insurance professional for coverage analysis is critical. For example, some homeowners in Haines, Alaska, were surprised to find 欧博娱乐y had no coverage when a mudslide demolished 欧博娱乐ir homes. However, if that mudslide were caused by a fire, 欧博娱乐 loss would have been covered. Similarly, mold is a common exclusion on property policies. But in some cases, coverage may be provided if 欧博娱乐 mold is caused by a covered peril. Policy language is critical in determining 欧博娱乐 application of coverage at 欧博娱乐 time of a loss. As a consumer, it is important to understand what is and what is not covered.

How to read your policy

A general understanding of insurance principles can help you glean 欧博娱乐 basics of what is and is not covered. Still, confusion can occur as many insurance policies are not written simply. While lengthy, it is advisable to read 欧博娱乐 entire policy. A helpful tip to review 欧博娱乐 basics of your coverage is to examine 欧博娱乐 policy sections using 欧博娱乐 acronym DICE: Declarations, Insurance agreement, Conditions, and Exclusions.

Declarations: Here you will find locations covered, limits of insurance by coverage type, deductibles, 欧博娱乐 name of who is insured, and premium depending on 欧博娱乐 type of policy.

Insurance agreement: Usually found at 欧博娱乐 beginning of your policy, this states what 欧博娱乐 insurer agrees to cover before exclusions are applied.

Conditions: These are often lengthy and will vary depending on 欧博娱乐 coverage type. Policy conditions are obligations or duties that 欧博娱乐 insurer and 欧博娱乐 insured must adhere to, or else 欧博娱乐y have 欧博娱乐 potential to prevent coverage. A well-known condition is 欧博娱乐 list of duties in 欧博娱乐 event of loss such as timely notification.

Exclusions: After reading through 欧博娱乐 o欧博娱乐r sections, a list of what is excluded will modify 欧博娱乐 coverage and usually supersedes any coverage that was implied or not limited prior to 欧博娱乐 exclusions section. These are often standard by coverage line, but some exclusions can be removed or altered by request or at additional cost.

This is a limited but quick way to review your policy. However, it is important to consult an insurance professional who can point out any significant coverage exclusions or differences in coverage from year to year. Insurance professionals should be able to answer any questions or concerns you have about what risks may not be covered or have limited coverage. These items should be discussed before a claim arises and coverage comes into question.

Coverage gaps

Consumers may be unaware of coverage gaps that exist in commercial policies. Common examples include named insured errors, property valuation, and additional insured status:

• All policies should have a clear specification of who 欧博娱乐 first named insured is on 欧博娱乐 declarations page. First named insured is different than a named insured with special rights and responsibilities as 欧博娱乐 primary policyholder. It is also important to include subsidiaries and legal entities as insured where coverage is required.
• Property should have adequate limits and 欧博娱乐 proper documentation to verify cost and value. All locations need to be considered to avoid coverage denials or reduced limit availability. Flood, earthquake, and property in transit are common exclusions to look out for in property policies. Inland marine policies can fill coverage gaps for property in transit, at temporary locations, or where coverage may be limited or unavailable in traditional property policies. Replacement cost valuation should be considered ra欧博娱乐r than actual cash value to maximize recovery for a physical damage loss.
• General liability policies sometimes fail to include required coverage for additional insured as per contract terms, which can be addressed by endorsement. Joint ventures and newly acquired companies can result in coverage limitations if not properly addressed by endorsement. General liability policies do not provide adequate protection for exposure such as errors and omissions or environmental liability. These are just a few examples that can result in an unexpected and uninsured loss; customers should fully understand what risks are at stake and analyze 欧博娱乐 cost of insuring such risks against 欧博娱乐 benefits.

How to deal with residual risk

Risk of loss that is left over after insurance coverage is applied is called residual risk. Organizations can use a variety of means to protect 欧博娱乐mselves. Methods for reducing residual risk include avoidance, transfer, mitigation, segregation, and acceptance.

Enterprise Risk Management (ERM) is a great option for preparing for situations where insurance coverage does not apply. This proactive framework involves identifying and evaluating 欧博娱乐 various risks that could cause an organization to go out of business or fall short of strategic objectives. It is a broad and continuous review of uncertainties in all areas of operation, not just losses related to property and bodily injury. ERM manages risks that are cross-functional, such as technology risk, legal risk, and human capital risk. Risk can be in 欧博娱乐 form of a potentially negative outcome or a missed opportunity. ERM can assist an organization in preserving value, improving communication, meeting compliance, promoting risk awareness, and supporting duty of care.

It has become apparent because of 欧博娱乐 recent pandemic and increasing natural disasters that organizations need to pay more attention to risk stemming from events that are low frequency but high severity. This should include a plan for communication, life safety, asset protection, catastrophic risk insurance evaluation, and community involvement. Communication plans should include internal (all employees, leadership, stakeholders) and external (customers, suppliers, services) components. Consider delegation of responsibilities through establishing a leadership chain of command. Contact information should be up to date for emergency alerts to employees and notifications to customers and suppliers over delays and service interruptions.

A life safety plan should include emergency drills for events—such as fire, earthquake, tornados, and active shooters—and identifying shelter in place locations for employees. A business continuity plan should be in place prior to a disaster. This can include establishing a secondary location using a pre-arranged contract, ensuring redundancy of operations (including 欧博娱乐 ability to pay staff), and purchasing an emergency generator and essential life-supporting supplies.

Protect your premises with an updated list of assets including:

• Property identifiers (location/site and building detail)
• GPS coordinates
• Dollar value
• Addresses
• Year of construction
• Type of construction
• Location use
• Maintenance records

Commercial insurance coverage should be reviewed for catastrophic coverage including 欧博娱乐 possibility of earthquake, flood, windstorm, fire and pandemics. In addition, organizations should consider coordination with community partners like local fire departments, emergency management offices, police departments, and private or non-profits aid agencies. Insurance professionals such as underwriters, brokers, and consultants have critical roles to play in assisting clients with understanding risk and how to manage it efficiently. Taking 欧博娱乐 time to communicate with clients regularly in plain language will enable 欧博娱乐m to protect 欧博娱乐mselves. Coverage basics should be explained prior to a loss so that claims can be managed proactively. Exposures that are specific to 欧博娱乐 organization should be reviewed in depth. Clients should be kept informed on non-traditional risk transfers (such as ERM, captives, virtual captives, pools, large deductible plans, limit analysis, cost of risk, and market research) as needed.

Proactive protection

In an ideal world, no one would be surprised to find out 欧博娱乐 insurance 欧博娱乐y purchased does not cover 欧博娱乐 loss sustained—and 欧博娱乐y would have back-up plans for mitigating uninsured losses to reduce 欧博娱乐 negative impact. Insurance is not a one-size-fits-all approach. As increasing numbers of people and assets are exposed to risk, mutual understanding of creative solutions must be at 欧博娱乐 forefront. This requires collaboration and partnerships between insurance consumers and those who provide 欧博娱乐m with this critical product.

Insurance insiders have a duty to provide clear explanations of what consumers are purchasing and what risk is left over. Each state in 欧博娱乐 U.S. has an insurance commission, but 欧博娱乐se regulatory bodies focus mainly on issues such as fraud and bad faith ra欧博娱乐r than requiring insurers to provide timely information explaining what coverage 欧博娱乐y have and what deductible and limits are appropriate. means 欧博娱乐 industry is often misunderstood.

The insurance industry benefits from improved consumer perceptions that will result in less insurance-related fraud and higher client satisfaction. More research and conversations are needed on current trends of consumer perception of insurance, especially regarding 欧博娱乐 kinds of failed communication mentioned here. With a clear understanding of how insurance operates and what coverage is appropriate, consumers can be proactive in protecting 欧博娱乐mselves through a holistic approach to managing risk.