Underinsurance in Atlantic Canada

RMS (Risk Management Services), Canada’s largest risk management services company, has identified a crisis of under-insurance in Atlantic Canada. Under-insured properties result in lost premiums for insurance companies and lost commissions for brokers. In the event of a claim, clients find they are inadequately covered, leaving both insurance companies and brokers exposed to poor loss ratios, lawsuits, and bad press. RMS has examined the extent of the problem to provide detailed regional information to help minimize this expensive, distressing problem.

Insurance to Value an Industry Problem

Under insurance across Canada amounts to $11 billion in lost premiums, based on the discrepancies between the reconstruction values of buildings and the premiums collected to rebuild them. The Canadian average breaks down at 70% of commercial properties having and under-insured average of 40%, and 80% of residential properties having an under-insured average of 27%. The situation in Atlantic Canada, however, is far graver.

The Facts:

Commercial Properties

Based on all Commercial Appraisals completed in Atlantic Canada throughout 2015, RMS identified:

• 81% of all commercial properties were under-insured by an average of 81% or $1,259,835
• 19% of commercial properties were over insured in 2015.
• 13% of commercial properties were within +/- 10%.

The top three underinsured building value tiers were:
• $1,250,000 – $1,500,000 – underinsured by 119%
• $4,000,000 – $5,000,000 – underinsured by 159%
• $5,000,000 – $6,000,000 -underinsured by 108%

Residential Properties

Based on all of the Residential Valuations completed in Atlantic Canada throughout 2015 RMS, Identified:

• 87% of residential properties were under-insured by an average of 38% or $135,387
• 13% of residential properties were over insured in 2015.
• 27% of residential properties were within +/-10%

The top three underinsured residence value tiers were:
• $250,001 – $500,000 – underinsured by 40%
• $1,500,000 – $1,750,000 – underinsured by 60%
• $2,000,000 and up – underinsured by 36%

The Importance of Insuring to Value

Insuring to value should always be part of an Insurance Professionals business strategy. To ensure that your client’s property is accurately insured, you should order an on-site appraisal of the property, keep it up to date by requesting a recalculation each year, and get a new on-site appraisal every five years. Be sure that you are using a professional appraisal company, experienced in Insurance Replacement Cost (not a market appraisal).

When Involved In An Automobile Accident

– Stay at the scene of the accident and manage your emotions.

– If injuries call 911 for medical help and Police.

– Log details of the accident, vehicle damage and take photo’s if possible.

-Get the names, license number, phone number, address , e-mail address, license plate number and insurance information from the drivers of the vehicles involved.

– Get the names and phone numbers of passengers in the vehicles and of any witness.

– Report the accident as soon as possible to your Insurance Carrier.  They will take good care of you.  First checking your policy coverages and based on the coverages you have , will walk you through the repair process for yourself and passengers if  injured and for your vehicle repair.  Your Insurer will have you fixed up and back on the road again !

Building a Relationship With Your Clients

As a broker, it is important for you to not just meet your clients, give them a policy and never speak to them again, but to build a relationship with them that encourages them to contact us when they have questions, updates or concerns.

When we sell a policy, we are selling the ease of mind to that customer that we will take care of them should a claim arise, however, if you speak to a lot of clients who have dealt with a claim, they will tell you there were things they weren’t aware of that were not covered or that were covered. They didn’t know what their deductible was or what it was used for other than to lower their premium. When you agree to protect their risk, don’t you think they should know what is and isn’t protected?

We forget to check with our clients every so often to find out if there have been any changes to their home that need to be covered. To let them know about changes to their policy, and talk with them about their deductible. These are all very important topics that are so often skimmed.

If you have open communication with a client they will find they understand their policy better, they will know what is and isn’t covered so there won’t be any surprises when the adjuster tells them their roof isn’t covered, or that their vacant dwelling does not have water coverage. We need to show clients that we are insurance professionals so they will have confidence in what we say and suggest. Making sure they are informed, is the best way to do that.

An area that I found was often missed with my clients was discussing their renovations. They assumed that they were covered based on the replacement cost that was determined years ago before their renovations were started, let alone completed. When I explained to them the gap in coverage between their current limit, and the limit they needed, they were shocked. Letting them know that if their home had a fire, the granite counter tops they had installed would be replaced with the vinyl they used to have, and the newly installed hard wood floors would be replaced with carpet; they were again shocked. However, how would we know about these changes if the client doesn’t know to call and tell us about them? Having a quick phone call or meeting with them every few years to check on this is all it takes to turn us from a sales person to an insurance professional.

Another area was their deductible. Often they would want to put a high deductible in place in order to lower their premium; however they weren’t aware that when they had a claim, they would need to pay that amount out of pocket. For most families, having to pay $1500 in a month on top of all their other bills would be detrimental. When this was explained to them, they were more open to lowering their deductible and paying the extra premium. When your client is concerned about the premium, this should cue you to talk about their deductible. Ask them if it would cause trouble should they have to pay the current deductible on top of all their other bills in a month. If the answer is no, then go with the higher deductible, but if the answer is yes, why put them in that situation?

Being a broker is a rewarding yet demanding position, the knowledge we have about insurance goes to waste when we don’t share it with our clients. If you want to be seen as the professional you are, show them that you are there to cover them and give them confidence that they will protected if they have a claim. Inform them of changes and important details about their coverage and encourage them to contact you if anything changes or they have questions.

“It’s easier to do the job right then to explain why you didn’t” – Martin Van Buren.

What do adjusters do

When experiencing a situation which could potentially result in a claim under your insurance policy, the process of submitting your claim could often prove more stressful than the actual circumstances that led to the claim.

Even when this is not true, depending on the size and nature of your claim, you may have to work with an adjuster appointed to investigate it.  By virtue of the often complex tasks that adjusters are expected to perform, the role of an adjuster is often dramatically misunderstood.

When submitting a claim, you are submitting a demand for payment, under a legal contract, against someone (the insurance company) that has way more money and much more expensive lawyers than you.  This puts you squarely in a potentially unfamiliar and hostile legal environment.

Questions like “Am I covered?“, “How much can I claim?“, and “How do I prove my loss and coverage, to establish my right to claim?” are inherently difficult to answer.  The process could be especially intimidating when this is not an arena that you are personally familiar with.

Irrespective the tasks performed by the appointed adjuster, the primary role of an adjuster is simply this. “To prove the claim.”

Even if sometimes claims are proven to fall outside of the scope of the coverage contract, or the value proves less than expected, the adjusters’ first responsibility remains always to, in good faith, prove the claim, if that is reasonably possible.

In order to ensure the integrity of the process, adjusters are also required to take an unbiased approach. This means that the adjuster has no attachment to developing specific evidence, but rather has to account for all available evidence, no matter the affect on the claim.

Fortunately in my experience most insurance claims are valid, reasonable and provable, and with the help of claimants this gets even simpler.  Really, we are here to help…  All you have to do is let us….

About the author:
Pieter Heydenrych is the president of Emergency & Environmental Claims Management (EECM Ltd.) an independent adjusting and environmental consulting firm. (http://www.ee-cm.ca/).