One of the riskiest activities performed in each organization is the purchase of insurance. In case of a catastrophic loss, insurance becomes “The Alamo” for the business. In many cases, if the policy does not respond to a loss, may be the dead of the business. For INSIGHT, insurance is not a “risk transferring” activity but a “risk trading” activity. The insured transfers the risk of a catastrophic loss to the insurance carrier and in return receives the risk of the carrier not paying the claim (carrier’s default and breach of contract risk). If this risk management activity is not done properly, the “ultimate” loss could exceed the risk before buying insurance (total loss + insurance premiums paid + the cost of litigation trying to recover from the carrier or its insurance agent/broker).
Few facts about the purchase of insurance that you probably already know:
FACT #1: Companies in the US do not purchase insurance because they need to transfer risk but because they have to. For some lines of insurance like workers compensation, it is against the law not to provide insurance for your employees in all 50 States of the Union.
FACT #2: The company’s insurance agent/broker may be your friend, and even your relative, but DOES NOT WORK for you. The insurance agent/broker is paid by the insurance company on commissions from the premiums you pay or on a flat fee. You don’t believe that the car dealer who sold you your last SUV works for you, do you? .
FACT #3: Insurance companies make money by collecting premiums, not by paying claims.
FACT #4: You will never know what insurance you bought until you have a claim. Filing a claim with your insurance company makes you feel like being in a plane that is going down and finding a parachute with the following disclaimer: WARNING! THIS PARACHUTE HAS NEVER BEEN TESTED AND MAY NOT WORK.
FACT #5: Before you purchase insurance, you have the risk to lose what you insure and what you didn’t. After you buy insurance, you still have the same risk to lose what you didn’t insure but the risk of what you insured is greater. Now you also have the risk to lose the premiums you paid plus the cost of litigation trying to recover from the carrier.
Insurance RFP© was designed by licensed and certified insurance and risk management professionals to help companies in the US to purchase insurance.
The Insurance RFP© generates a request-for-proposal, so the risk manager can purchase insurance based on exposures associated with what the company brings to the business (owned, leased, rented or borrowed); what the company does to make, market and deliver its products; and what the company sells. The Insurance RFP© also includes information about the company’s current insurance policies; condensed financial statements; loss runs for each line of insurance; open and closed claims; litigation summaries, and much other information usually requested by carriers.
The Insurance RFP© is not a document that is generated once a year at renewal but a living document that is updated as a result of the company changing its capital structure (adding or selling assets, changing inventory values, laying off a large amount of workers, merging or acquiring new businesses; starting new construction, etc.); adding, outsourcing, or discontinuing activities; marketing new products and services ; receiving new claims; finding coverage gaps during claim litigation; or just any event that may create new exposures.
Some of the sections included in the Insurance RFP© are:
- Agent/Broker Selection – using a qualifications questionnaire
- Market Selection – using the list of insurers in USA and Canada (3,800 +) from A.M. Best Key Rating Guide®
- Coverage Selection – using from 500+ property and casualty coverages (with descriptions) available from ChancesR® database.
- Exposure Analysis – retrieving information from the Activity-Based Risk Analysis© application about resource, activity and product based exposures. For contractual liability exposures due to subcontracted activities, information is retrieved from the Contractual RM©.
- Current Insurance Program – retrieving information from the policy management module.
- Loss Experience – retrieving claims and litigation information from the Insight Claims©.