Common Problem #1 – Named Insureds
Today I’m going to kick off a multi-part series on the most common mistakes we see on business insurance policies when we perform coverage reviews. I hope this is educational and helpful not only for business owners but also for their advisors. This illustrates the point that having insurance isn’t the same as having the right insurance.
With many businesses shut down; now is the right time to perform a review of your insurance. I’m not talking about shopping for insurance, I’m talking about a deep dive review. You can ask your broker to help you with this, or you can hire a qualified advisor – like me – to help you understand what you have, what you need and whether your protection is properly structured.
Much of my discussion in these videos will focus on medium to large-sized businesses – which I define as firms with at least $5 million in annual revenue.
Having performed hundreds of reviews I can say almost all coverage programs are deficient. It could be a minor error here or there, but in too many cases I see serious deficiencies. Coverage which is dangerously out of date that exposes the client to unnecessary risk.
You’ve got to ask – Why does this happen?
In my opinion, it’s a combination of insurance broker complacency, lack of diligence, and often the client is also responsible for not really engaging in the process.
I get it, insurance is not the most exciting thing for a business owner to spend their time on. But to an entrepreneur, their business represents a huge chunk of their personal net worth. It’s responsible for their income, lifestyle, and legacy, which is why protecting it properly is so critically important.
So, with that intro covered let’s jump into the first mistakes we see too often that simply shouldn’t happen.
1. Missing named insureds
Insurance policies are contracts between an insurance company and the entity named in the policies. If an entity is not named in the policy, they may technically not a party to the contractual benefits of a policy.
During our reviews, we often find entities that should be named, are omitted. It can happen for any number of reasons – here are a few examples:
Real estate is purchased a holding company is formed.
* A new operation or product line is started, a new corporate entity is formed.
* When new partners are brought into the business a subsidiary entity is formed.
* Whatever the reason, business owners will forget to inform their insurance agent of an entity and they’re never added to the policies.
Another error we often see is how insureds are characterized between different policies within an account.
For example, there could be 4 named insureds to the company’s general liability policy, but only the first-named insured appears on the company’s umbrella policy. This is a problem.
We also see entities mischaracterized such as the named insured stated as ABC Corporation, when in fact the name of the entity is ABC, LLC.
Are these points big deals?
That will depend, but you don’t want to find out when you’ve got a multi-million-dollar lawsuit on your hands and your insurer is balking because the name on the lawsuit and the name on the policy isn’t the same.
The bottom line is that all entities must be correctly characterized on your policies. Failure to get this right could waive out coverage at a critical time for certain entities or subsidiaries for a company, basically blowing up your coverage you thought was there to protect you.
Concerned that your policies may have errors like these?
This is just the first step of many in our review process that helps identify shortfalls, gaps, and overlaps. Want to learn more about our process?
Why not contact me for a conversation – no pressure, no obligation. You have questions – we have the answers – let’s talk!