Why is this a form of transferring risk? Because, for a price (premium), we whether it be our home or auto or health for that matter our health, transfer the risk should something occur, to someone else, in this case an insurance company.
But, are we really transferring our risk in the way we think we are? Said another way, how do we really know we’re getting the protection we think we’ve paid for?
To help you know the answer to that question vis-à-vis risk transference and insurance, let’s consider how one “reads” an insurance policy, i.e., how to know what you’re really getting. We’ll use a D&O policy for this exercise. There are a number of really big questions to ask and know the answer to.
They include:
- What does the insurance policy say it will cover, the “insuring agreement” ( e.g., people, buildings, vehicles, facilities, liability, disability, etc.)?
- What is the stated coverage period (when does it start and when does it end?)
- How does it define a claim?
- How does it define a loss?
- How does it define a covered insured? (Who, what, which locations, etc. are actually covered by this policy?)
- How is a claim, triggered (adjudication process set into motion)?
- What are the policy maximums?
- What if any portion of coverage, is limited?
- What is the deductible or retention (retained risk) and coinsurance if any?
- How are legal costs handled? Are additional limits above and beyond the policy maximum, to cover these?
- Are there any “endorsements” which add to, or takes away from coverage?
- What do they mean?
- What is excluded?
- What are YOUR responsibilities as an insured?
- How can you terminate coverage?
- How can the company terminate your coverage?
- Some key words to look for and understand the impact of include:
“Limited,” “however,” “greater or lesser than,” “minimums,” “maximums,” “rights and duties,” “named insured,” “additional insured,” “named perils,” “coinsurance,” “pre-existing,” “retro date,” “subject to,” “unless,” “must,” “regardless,” “discovery period,” “claim,” “claimant,” “loss,” “notice of claim,” “non-renewal/cancellation,” “subrogation” and conjunctions (and/or).
So now let’s look at how a typical policy flows.
Most start with a Table of Contents–start there to better know where to find various topics.
Next is the “Insuring Clause or Agreement.” This is the section which refers to who and what is covered and for what types of situations or claims.
Unfortunately, it includes many words (e.g., policy period, Insured persons, loss) later defined in the “Definitions” section. When you’re reading one section in any contract (policy), and that section refers to another, go there immediately, and read the appropriate language, as it will clarify and other wise modify the former section.
Next is Discovery–D&O only
The Definitions section is next. Here all of those items referenced above are in fact, defined. Note, definitions are almost always (by law) required to be emboldened, and in CAPS.
Next is likely to be the “Exclusions” section. Read and know what IS NOT covered.
Following this, the Loss limits, coverage maximums section including reference to any deductible or retention of loss that may exist. Next is usually listed How the defense of a claim will be handled followed then by the “Notice of Claim.” These are duties incumbent upon the insured to notify the insurance company of any claim or incident which might reasonably lead to a claim.
Under a liability policy, the last two sections are usually the “Coverage Extensions” and “General Conditions” sections.
The “Coverage Extension” section will outline additions to the aforementioned coverages and may include things such as coverage for your spouse or estate. It is in this section you will find any broadening of coverage.
The “General Conditions” section includes things such as: how the policy can and may be canceled, by you or the company.
