Insurance protection gaps can be caused by many different things. One is when insurance agents suggest that a policyholder can save money by purchasing insurance to less than full value. Professor Jay Feinman warns about this and calls this the “underinsurance gap.” He defines this as occurring when “the policyholder has coverage, but in an amount that is less than the extent of actual or potential losses.”
This was warned against by another Professor, Alan Manning, in his blog post, Under Declaring – You are now the insurer! In the post he says the underinsurance problem is common:
A significant number of claims we at LMI attend, have an under insurance problem. This can destroy all the hard work of a business and in some cases leads to business failure or at the very least a significant financial loss for the owners/shareholders and often dismissal for the person responsible for the decision.
He also recounted how this happens when some insurance agents provide advice to underinsure, often to obtain business by suggesting that another agent is not attempting to reduce the price of insurance:
Yesterday I had one of those calls where you can feel the frustration and stress in the broker, where a long standing client is under attack by another broker who is simply selling on price and stripping away the years of hard work that the holding broker has put into the client.
In this case, the attacking broker is advising the Insured to only declare 80% of the true value at risk as the policy contains an 80% co-insurance clause.
To me, this is extremely poor advice and is putting both the Insured at risk and the attacking broker’s professional indemnity program, not to mention their reputation.
. . .My advice to brokers is, in the strongest terms, never recommend this to your clients . . . . Insurance is all about protection . . . . Too much is at risk to gamble with half baked insurance.
My advice to Insureds is, if you receive this advice, stick with the broker who is there protecting your business and personal risk, or if it is your holding broker, find a new broker.
The American Association of Public Insurance Adjusters (AAPIA) and the Florida Association of Public Insurance Adjusters (FAPIA) have come out publicly against the insurance gap problem. They are taking action about this problem with regulators and legislators. Merlin Law Group joins them in this effort.
Holly Soffer, the General Counsel for AAPIA, will be at the Professional Public Adjusters Association of New Jersey meeting this Thursday. She will be presenting on, “Coverage Gaps Issues Affecting Public Insurance Adjusters.” Here is a link to the agenda for the conference.
Next week, yours truly and leaders from the PPAANJ will meet with New Jersey’s Insurance Commissioner to discuss, in part, the insurance gap problem and what she can do about it.
Thought For The Day
Rarely do we find men who willingly engage in hard, solid thinking. There is an almost universal quest for easy answers and half-baked solutions. Nothing pains some people more than having to think.
—Martin Luther King, Jr.
