Mystic Memos
The Marble, Solid Surface and Tile Insurance Connection
Newsletter from Schechner Lifson Corporation
'Hard' Facts
Shavings into Savings
An Argument Against Gambling
Welcome to the home of the Mystic Memo - dedicated to broadening the knowledge of importers, wholesalers and distributors of marble, stone and tile.
In this issue, we take a look at how some common insurance clauses and practices can work to your detriment - and how to avoid these problem areas.
Coinsurance Clause
Many insurance policies available today include a Coinsurance Clause. Essentially, a Coinsurance Clause will penalize an Insured if it turns out that they have not purchased a 'satisfactory' amount of coverage on either their inventory, building, or both.
Take an example where an Insured has property with a replacement value of $1,000,000, a Coinsurance Clause of 80%, and a policy limit of $650,000. In the event of a $500,000 loss, how much do you think the Insured would collect (before deductible):
A. $500,000
B. $650,000
C. $406,250
In this example, the Insured would only collect $406,250. The Coinsurance Clause mandated that the Insured carry a limit of at least 80% of the value of the property, which here would be $800,000. Any partial loss would be paid using the following equation:
(Limit carried / limit required) x amount of loss
Limit Required
Did the Insured make a conscious decision to buy a lower limit, hoping to save on premiums? Did the agent not determine the real replacement cost of the property, nor recommend an appropriate limit? All are possible, but in any event, the Insured is out of pocket almost $100,000.
The Solution - The Property Policy available through the Marble, Stone and Tile Insurance Connection doesn't have a Coinsurance Clause - - so that if a conscious decision is made to buy a lower limit, or the property turns out to be worth more than thought, the Insured doesn't get penalized.
This coverage is available for all inventory, and rented or owned buildings and equipment.
Valuation
Imagine the following - out in your warehouse, an ocean container with a shipment of new inventory just tipped over as the mis-operated gantry was preparing to strip-out. As a result, $100,000 of goods just sheared into chips, worthy perhaps for use in a nice terrazzo or mosaic application, or for sale to the local garden store as a ground cover.
Or, was that $250,000 in goods?
Why the discrepancy? Let's assume that the $100,000 was your cost, but that the product could have been sold for $250,000. Had the loss happened during delivery, a typical ocean policy would provide CIF+10%, or $110,000. On land, most Property insurance policies pay replacement cost on inventory, which in this instance wouldn't even give you the 10% provided by the Ocean policy.
Do your policies take your margins into consideration?
The Solution - The Property Policy available through the Marble, Stone and Tile Insurance Connection covers your goods at Sales Price - - so regardless of whether the damage happens on the ocean or in an accident while in your inventory, your business doesn't suffer.
Audits
PART I
Congratulations! You've just landed a major supply contract that will drive your sales up by 40% over last year!
More congratulations from your insurance company! You've just caused your General Liability premiums to go up by 25%, because it's rated on your gross annual sales!
Is this 'fair'? We don't think so. Chances are, the loss exposures haven't increased all that dramatically. Why should success be penalized?
The Solution - premiums for the General Liability Policy available through the Marble, Stone and Tile Insurance Connection are rated on a fixed amount of property - - so even if your sales go up, your costs remain constant.
PART II
Many Ocean Marine policies require that you keep records of each shipment, and submit them to the insurance company each month so they can 'track' your activity and premium usage.
Do you have the time to keep and file such records? Even insurance companies don't have the personnel to track and bill reports under this antiquated process.
The Solution - premiums for the available Ocean Marine Policy are rated against your gross sales - - an up-front deposit is based on estimated sales, and premiums are adjusted at the end of the year using your actual sales figure. The above examples are based on certain assumptions and are for reference only. However, don't make assumptions when it comes to your business. Let mystic take the mystery out of your insurance program.