Lies people believe about INSURANCE

The insurance industry is full of quirks, but for clever brokers these peculiarities can become opportunities.

I spent a few days during December cleaning out my computer files and came across a few very interesting articles in the US Insurance Journal©. These articles highlight the lies people believe about insurance, and present some interesting opportunities for brokers.

1. "If I don't have anything, they (the plaintiff, lawyers and court) can’t take anything - you can't get blood out of a turnip."

The article related the experience of one defendant who lost his home and had a garnishee order placed on his future earnings. So you can in fact get blood out of a turnip (or a stone, as they say in the UK).

2. "There is no need to purchase liability limits higher than my net worth."

More than one individual with a net worth of, for example, $250,000 has lost a $1 million
negligence suit. A rule of risk management is: “don't risk a lot for a little”.

Due to our local court costs, a minimum liability limit of R10 million is recommended.

3. "That's why I buy insurance."

The article suggests that this statement should set off warning bells of a ‘moral hazard risk’. Why take care of things if the insurance policy covers any loss or damage?

4. "Corporate status will protect me from liability; I'll just declare bankruptcy and shut down."

Many people believe that their personal status has no bearing on their business status. I think we have all seen what happens when a person steps over the line, or manipulates their business activities to their personal benefit. Our courts will investigate every avenue to secure compensation.

5. "Public adjusters are bad (or good)."

“Agents and adjusters generally portray public adjusters as bad for one of two reasons:
(a) agents don't want their clients to think another party can do something for them they can't; and
(b) adjusters may not want to deal with someone who knows as much or more than him / her about the policy language and coverage.”

Personally I believe that everyone has their place. In most cases, a public adjuster is a good guy, but check the fee first and when it is payable. Insurers do not usually pay the fees of public adjusters.

6. "Insurance is all the same."

“This myth is the hardest to overcome. We must remove the idea from our client's minds that it is all about cost. Insurance not only protects the insured's stuff, it also protects the insured's revenue-generating capacity; and insured's want to protect their revenue and their revenue-generating capacity.

“A poorly designed insurance program (i.e. the cheapest policy) can cause a major loss in the insured's bottom line (the one looked at and depended on most heavily). Show the insured how the program protects the bottom line, not how it lowers expenses.”

7. "Dog bites"

Judging from the US experience, there is an opportunity for brokers to safeguard their clients against liability for dog bites. Apparently, insurers in the States are looking closely at what dogs their proposers’ have and are charging extra if the dog breed has a history of biting. The breeds they do not like are:

• Pit bull (26.95% of all fatalities)
• Rottweiler (15.6% of all fatalities)
• German Shepherd
• Husky
• Malamute

The claims experience is terrible. The article says: “According to the study, dog bites account for one-third of all homeowners' insurance liability claims, costing $387.2 million in 2008, up 8.7 percent from 2007.” And goes on to state “dog bite claims was $24,461 in 2008 (the most recent figures available) down slightly from $24,511 in 2007. Since 2003, however, the cost of these claims has risen nearly 28 percent. Additionally, the number of claims has increased 8.89 percent annually to 15,823 in 2008 from 14,531 in 2007.”

8. Can you sell BI insurance in two minutes?

In the States they refer to Business Income insurance whereas we refer to Business Interruption insurance. Either way, the question is: “Can you sell BI insurance in two minutes?” An Insurance Journal© article offers the solution.

“The average person, speaking at a normal pace with necessary emphasis and inflection, speaks between 200 and 225 words per minute. This means that the business income concept and ‘buy-in’ needs to be delivered in approximately 400 words to fall within the two-minute window.

“Following is a script that can be customised to model each agent's style, but it delivers the message in about two minutes. Don't believe it? Get a stop watch, speak normally and read the script out loud. Ready; GO!”

"Your business exists to make money: money to pay your employees, cover the business' bills (such as rent/mortgage, supplies, taxes, and so on) and hopefully enough money for your personal use and benefit. The money you take home pays for your necessities (a house, food, clothes, etc.) and especially those 'niceities' like a bigger house, great vacations, private school, etc.

Without an income stream, employees don't get paid, bills don't get paid and YOU don't get paid. And with no income or source of surplus capital, your employees will find other jobs, bills will go unpaid and your personal financial situation will suffer.

Business income protection assures that your business and you maintain a stream of income following a major loss. Estimates are that 25 percent of all businesses suffering a 'catastrophic loss,' one that causes them to close for more than 30 days, never reopen. And about another 25 percent close within three to five years following the loss. We can't find credible information on the effect of these closures on the business owner's personal financial picture.

It is highly unlikely that these businesses closed due to the lack of or improperly written or valued insurance on the building or the contents. Generally, these businesses closed due simply to the lack of INCOME. You can generally get a loan to aid in getting the building rebuilt or the contents replaced; but lost income is just that – lost.

Yes, there is an additional premium to cover your business income. But rather than an expense, this coverage must be viewed as an investment in the continued viability of your company. Of all the property coverages available, this is the most important. Without a flow of income or massive cash reserves, your business may cease to exist following a major loss.

Business income coverage is actually exceptionally cheap protection considering the alternative. Does this sound like protection you could use?"

This script covers all the marketing aspects and plants the seed so well, that I think you should copy it into your Agenda folder!

So we need to make sure that our Personal Lines policies provide a realistic ’dog bite’ medical limit. Obviously, R500 is simply not going to be enough.

If you have any questions about short-term insurance matters, please contact editor@fanews.co.za and Graham will do the necessary research and offer technical comment.