What to do when a loss occurs?

A lot of clients are in panic when there is a loss to their property, especially the first time. They always tell me “this is my first insurance claim; I don’t know what to do”.

General speaking, you should take reasonable measure to mitigate the loss with common sense as soon as possible. If there is a fire, call fire department; if pipe bursts, shut off water main or call a plumber when you don’t know where the water main locates; if there is a theft, call the police and board up damaged entrance.

Some clients say- “I don’t know what to do, so I am waiting for advice from insurance company”. Let me tell you- if it is a covered claim, your insurers would be more than happy to see you save something for them. Actually most of insurance companies are willing to make some contribution to the reasonable cost for loss mitigation. For example, you may be paid $15/hour for removing water from basement and/or lifting contents to prevent further water damage. On the other hand, If your claim is declined in the end, you have saved for yourself. Therefore, do not let water keep running until an adjuster gets there. Take an immediate action to mitigate the loss for insurers and/or yourself.

At meantime, I would suggest that  you take lots photos as visual proof of the loss. Certainly,  you should report the incident to your insurance company as soon as practical to give them an opportunity to investigate the loss in order to determine cause and extent.

 

Landscape Winter 3

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Winter Sunrise

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How to Save Insurance Premiums

In recent years, natural disasters happen more and more often and insurance premium is getting higher and higher even you hardly make a claim like myself. As an adjuster, I would give you some ideas on how to save premium in terms of risk management.

If you have read my post Personal Risk Management and Insurance, you should understand no insurance policy covers everything. Basically it covers insurable risks which must be sudden and accidental. In daily life, major property risks are fire, water, wind/hail, theft…etc. Major auto risks are collision, theft…etc.

Insurance is spreading the risk or risk sharing. It uses premium of many to cover the losses of a few. A policy is a contract between insureds and insurers. Normally,

-the more it covers, the higher premium is;

-the lower deductible it carries, the higher premium is; the more claims you make;

the higher premium is.

Therefore, to make a wise decision when you purchase insurance, you should balance risk retention (deductible), risk transferring (insurance) and cost control (premium).

Tip one: risk transferring – ask yourself what major risks you have?

All-Risks policy is a most comprehensive and also most expensive policy. It covers more risks than a named peril policy. For example, Mr. Smith has a sick dog who constantly pees on a carpet which is ruined eventually. This loss is likely covered under an All-Risks policy but definitely not covered by a named peril policy. So before purchasing a policy, you need to ask yourself what major risks you are facing and then check with an insurance broker/agent what kind of policy could respond to them. If you only have concerns for fire, water, theft… which mostly are covered by a named peril policy, why pay extra money for the All-Risks policy? Bottom line is transferring major risks (especially in terms of severity) to insurers to avoid financial disaster when a large loss occurs.

Tip two: risk retention-get a policy carrying a bit higher deductible and assume small losses yourself.

You know a policy carrying a lower deductible costs more. On the other hand, a small claim makes your premium go up as high as a large one. So most of time, when you have a small claim, it may not be worthwhile to put through the claim as your premium increase could be more than the claim amount. Furthermore, have you ever heard that when you have a large loss, the chance of deductible being waived is greater on higher deductible amount?

Here is an example. Mr. Smith has a water claim in the amount of $15,000 and his policy deductible is $1000. In the end, the $1000 deductible is waived based on disappearance deductible clause in his policy. Mr. Wright has a similar claim with the same amount; but his deductible is $500 . Unfortunately, Mr. wright’s deductible is not waived based on the same policy wording. How come???

Many insurance companies encourage their clients to assume small losses in order to save operational and claim costs, so they place this incentive clause in the policy and some of the insureds are not aware of it until they have a claim.

I am quoting a sample of this kind of clause for your better understanding:

“The deductible will disappear if:

1) your amount of claim is $5,000 or greater and you have been insured with us 10 years or more and your policy deductible is $1,000 or greater; or

2 your amount of claim is $10,000 or greater and you have been insured with us 10 years or more; or

3) your amount of claim is $10,000 or greater and you have been insured with us less than 10 years and your policy deductible is $1,000 or greater.”

Yes, as you can see from the clause, the incentive plan also rewards customer loyalty. The longer you are with an insurer, the higher chance of deductible being waived. I would suggest that do not change insurers that often if not necessary. Majority of insurance policies follow industry standard, so they are very similar. Most of competition is on service side. Insurance companies are well aware of it and put lots of force to improve service.

Tip three: risk prevention-take reasonable measure to prevent loss from happening

Risk is a type of uncertainty. It seems very hard to be avoided but the probability is likely reduced when you take preventative measure. For example, before vacation, turn off water main and drain all the water from plumbing pipes. I have seen many cases that pipe burst during owner’s vacation and the property sit in the water for a while, causing extensive damages. Also maintain your vehicle periodically to minimize risk of mechanical failure during driving. Most insurance companies implement surcharge on premium when you have a claim. At least you will lose claim free discount for 3-5 years. Thus, the fewer claims you have, the more premium you save.

All above are my general suggestion as an experienced adjuster. You may discuss specific needs with a broker/agent. In essence, most cost-effective way to manage your risk is retaining minor risks, transferring major risks and minimizing probability of loss by taking preventative measure.

Feature photo taken by Wen- Q

 

Personal Risk Management and Insurance

We often hear on commercials that “buying insurance is buying peace of mind” which gives the public an impression that insurance covers everything.Unfortunately it is not true. For example, property insurance usually has three types of policies. The most basic policy only covers fire, smoke, lightning, vehicle impact, certain water losses, wind/hail, vandalism and malicious act…etc. A broader policy may cover theft, transportation and electricity (power surge) on top of the risks listed above. A third type of policy is called All-Risks policy (most expensive one) but  its coverage is limited by  exclusions. So none of them covers everything.

Generally speaking, an insurance policy covers sudden and accidental losses.

The following examples may give you better understanding.

Water damage caused by pipe burst in non heating season is a sudden and accidental loss which is covered by a policy; but  a pinhole on the pipe resulted in repeated and continuous leakage is not an insurable risk.  Most of habitational insurance policies exclude resultant water damage due to repeated and continuous leakage. Normally heavy mold is an indication of long-term leakage.

For vehicles, collision, upset and theft are good examples of insurable risks; however “wear and tear” is not for sure.

Therefore, don’t be tricked by the commercials. You’d better REVIEW the policy being offered to make sure what coverage is included. If you dont’ understand wordings, ask your insurance agent to give you explanation.

Although no insurance policy covers everything, but major risks in our daily life are mostly covered. In terms of volume, majority of property claims are water damage (60%) like plumbing issues,  sink overflow, sewer back up, ice damming…etc. In some areas, wind and hail is a large risk. Theft occurs quite often in cities. In terms of severity, fire loss is at the very top. On auto side, collision would be a major risk. Theft happens a lot; however, sometimes, a stolen vehicle could be recovered by the police and then it ends up repair, towing and storage costs.

Buying insurance is not a normal purchase. It is a process of risk management. I used to work with  the leading global provider of risk management and insurance  brokerage. Most of large companies, organizations and municipality governments have risk managers. One of their jobs is determine:

• what risks are major and what risks are minor
• what risks should be transferred to insurance company by paying premium
• what risks should be retained (self insured) for better cost control

When it comes to personal insurance, the principle of risk management should be the same.  You need to think about risk retain, risk transfer and cost control.  How to do that….see post How to Save Premium

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