Disability Housing Network Fall Conference Workshop Notes Session 2: Insurance Coverage for Housing Corporations Presenters: Dan Overmyer, Overmyer Associates and Andrea Schrader, Great American Insurance Co. December 1, 2010 Both Mr. Overmyer and Ms. Schrader spoke from PowerPoint presentations. Given below in black is the text from their slides, along with notes, in blue, taken by DHN Technical Assistance Consultant Cathy Allen. Questions from the audience, along with the answers given, appear at the end of each section. Property and Casualty Insurance Dan Overmyer, Overmyer Associates Basics What is Insurance? * A social and economic device for reducing risk by combining a sufficient number of homogeneous exposure units to make their individual losses collectively predicable. Why do you need it? * It’s an avenue for you and your company to transfer risk to an insurance company in return for payment of premium. * If you have property, employees, provide a service and/or produce a product, you will need to transfer the risk of a catastrophe and insurance is most likely the best way to do this. Overview of Coverage Parts The following coverage parts should be reviewed frequently with your agent: Property (Building & Contents) Business Income and Extra Expense General Liability (including EBL and EL) Auto Coverage Executive Liability Coverage Crime Umbrella Property Coverage The insurance company and the agent will determine the re-construction cost of the building(s) that are owned/managed using a analysis of yr blt, construction type, square footage etc. This value has no relationship to market value, it is strictly based on construction costs. There are not many actual cash value policies any more. This can keep the premium down, but it is not in your best interest. Important items to look out for: You will want to make sure the property is insured for replacement costs and not actual cash value. Replacement cost means the company provides monies to rebuild the property fully. Actual Cash value will take into consideration depreciation. For example, if a roof has a life of 20 years and is 15 years old with a value of $20,000, the company will only pay 25% of the $20,000 if the house is insured under “actual cash value”. The math is as follows: 15/20=75% of the roof is used leaving 25% of life left. Coinsurance Another important item to avoid is the concept of Coinsurance. If the property policy contains coinsurance, then the insurance company can penalize you if determined that the property was underinsured. If, for example, the policy contains a coinsure percentage of 80%, then the property limit must be at least 80% of the reconstruction value or the company will only pay 80% of the claim. The way to avoid coinsurance is to have your agent endorse the “agreed Amount” endorsement onto the policy which waives the coinsurance penalty. This means all three parties (agent, company, insured) agree that the limit is a true value to the best of our knowledge. Make sure you are insuring the full value of the property. Property Coverage Considerations Always examine deductibles as an avenue of reducing costs. If you have multiple properties, consider placing them on a “blanket” form which will gain you the appropriate economies of scale and would provide one limit to pull from in the event of a loss. Always evaluate Business Income & Extra Expense coverage which provides cover for loss of rents. In addition, it will provide temporary housing for tenants while the building is being repaired. Other considerations are back up of sewers and drains, ordinance & law coverage etc. Policies will often have a $10,000 rider for loss of sewer and drain. General Liability General Liability protects your business from third party claims for bodily injury, associated medical costs, and damage to someone else’s property. General Liability coverage excludes coverage for professional services such as nurses, counseling etc. A separate Professional Liability policy will be required if these services are performed. Auto Coverage Even if your organization doesn’t have vehicles, it is still important to have hired/non-owned auto coverage including physical damage coverage. This provides coverage for the organization when employees drive their personal autos for company business. This also provides coverage in the event the organization was to rent vehicles. The employee’s own coverage will be primary, but if your organization is brought into a suit, this policy will provide coverage. Executive Liability Directors and Officers Insurance: provides coverage for D’s and O’s of the organization in the event they are sued in conjunction with the performance of their duties as it relates to the company. Employment Practices Liability: provides coverage for management of employees. Common exposures include sexual harassment, wrongful termination and discrimination. Try to put these two policies together. The premium will be $2500, minimum. Talk with an attorney or insurance agent about your needs. A good employment practice is that once you have 15-20 employees, you should get this. It will cost about $100 per employee. Crime Coverage Crime insurance protects organizations from loss of money, securities or inventory. Common claims allege employee dishonesty, embezzlement, forgery and other criminal acts. Employee dishonesty coverage covers losses by most dishonest acts of employees such as embezzlement & theft. Money & Security coverage pays for money and securities taken by burglary, robbery, theft, disappearance and destruction. If you get 15-20 employees, put this in place fairly early. Umbrella Umbrella policies provide additional limits over the primary General Liability and auto limits. It is a cost effective avenue of obtaining higher limits of liability and should be considered for any business. The specific limits should be discussed with your agent based on the exposure present. Additional Thoughts What affects my ability to obtain coverage at a reasonable premium? First and foremost, running a safe and organized operation. Being mindful of all potential exposures to your business Updated structures, most importantly, roof, wiring (avoid aluminum wiring if at all possible) and HVAC. Loss history. If there are previous losses, what has been done to prevent them from happening again? Loss control, is there a plan in force for loss reduction and loss prevention? Economies of scale, the more properties you have, the better rate per location you will obtain. Experience in the industry. Aluminum wiring is in buildings built between 1969 and 1974. If you have one of these, there is a change it will not be covered. Questions and Answers Q. Our insurance company wants property appraisals to determine the amount of coverage for the replacement value. This is going to cost big money. Who is responsible for paying this? A. The insurance company should evaluate the values and the limits of coverage. I have never seen anyone force a customer to get an appraisal. Usually, the insurance company uses a “Marshall Swift Analysis” which is a formula for determining the coverage amount. Q. They aren’t forcing us to get an appraisal but they are “highly recommending” that we do. A. I have never heard of that. Q. Will the insurance company run numbers on the value of a nice home in a bad neighborhood. The neighborhood affects the sale price, but we have invested some money into the property itself. What will they insure? A. It is $100 per square foot, give or take. The agent will conduct an assessment of the property and sends in the information based on his or her understanding of each insurance company’s requirements. The value is determined by the underwriters at the company. Q. What if we improve the value after insuring it? We’ve done renovations, etc. A. Let the insurance company know you have added value. Q. If you have an employee who has personally become uninsured, what should we do? A. That happens more frequently than employers know. You should be looking at every employee’s BMV record every three years or so. If they get a ticket, even on their own time, it should affect their ability to drive a company vehicle. Q. Should we ask each employee for proof of insurance? A. Yes, and make sure they are renewing it every year. Q. How does Directors and Officers Liability Insurance affect my board members? A. If you have a policy, they are covered if the board is sued as a group, which is usually the case. They may not be covered if they are named individually, but that rarely happens. Most policies are for $1 million. Q. If a board member is injured on the way to a board meeting, are we liable? A. No. That’s on his own insurance. Now, if he is liable for injuring someone else, there may be a suit. Q. Is this what D&O covers? A. No. That’s different. D&O is for actions taken by the board that someone may suit over. Q. We’ve had different insurance carriers, and we try to shop around from time to time. We are struggling to find a carrier for rental properties. We’ve had some roofing claims lately, due to severe weather. We’ve been told they are dropping us. Where shall we go to find coverage? A. There is no question that the market is “hardening.” It is going down. Prices are going up. This will get more and more difficult. We think this will be more difficult for the foreseeable future. There is a cycle to it. Q. When is a housing corporation responsible for a slip and fall accident? A. The owner is always responsible. They are responsible for clearing the property and keeping it safe. Tenants and 3rd parties come after owners for these – when it snows, is icy, etc. Maybe this is a legal question, rather than an insurance question. No fault medical coverage will pay medical bills for anyone who is injured without affecting your rate. Q. What if the lease says that the tenant is responsible for snow removal. Is the landlord still responsible? A. The building owner is responsible, even if it is spelled out in the lease. Welcome Home Andrea Schrader, Loss Prevention Consultant Great American Insurance Most Common Causes (of accidents in homes) Slips and Falls Fire Burns Auto What do we look for when we walk through a house? Falls Ramps and Stairs Ramps - must be properly designed, with a specific grade Stairs - good construction Stairs uniform and in good condition Handrails 42 inches high with foot rail and mid-rail Lighting - both inside and outside Fire Slip and Trip Hazards Level changes - uneven sidewalks and flooring Rugs - these can go bad, the rubber backing deteriorates over time Cords - trip people up. These are everywhere, but keep them out of aisles and walkways, and make sure they are in good condition. Wet surfaces Weather - whether or not you are required to remove snow differs from locality to locality. Make sure your contractors are insured. Causes Smoking - need to provide place to dispose of ashes properly; also supervision Electrical - Overloading powerstrip, We cannot plug everything into a single powerstrip. It can still cause a fire if it gets overloaded. These are really no better than an extension cord. Housekeeping - paper, cloth and wood are all combustible. If they are heated and cooled over and over they can burst into flames. They must be kept 36 inches from a heat producing appliance like a furnace or hot water heater. Detection Rate of rise Ionization Photoelectric Protection/ Extinguishers Monthly inspection Gauge Seal Pin Tag Sprinklers - save lives. These are not required with fewer than five residents. They should be inspected every year. Burns Food Bath Water - Temperature should be between 99 and 102 degrees when checked at the tap. Auto Drivers Who is driving the car? Check driving record Check Insurance Train Vehicles - Maintenance, Maintenance, Maintenance Staffing Selection Training Ratio Q. What is the useful life of a fire extinguisher? A. Get it inspected regularly. I recommend not buying the throwaway kind. There is no way to check them to make sure they are working. Q. What are the requirements for replacing smoke detectors? A. every 5-10 years, including the ones that are hard wired. Dust builds up on them and then they don't work properly. Hire a fire protection company to come out to test the sensitivity of them. It can be expensive, but worth it.