Managing Risk by Understanding Your Insurance Policy
Vol. 2 No. 3
One way to manage risk is to transfer the risk to someone else. The most common form of this approach is the purchase of insurance. For a fee (premium) you transfer the responsibility to pay for a loss (less any deductible), to an insurance company.
To successfully transfer risk, however, you must understand what you’re buying—and not buying. Reading and understanding the following 5 sections of your insurance policy (not merely relying on your broker) is critical to a proper understanding of which risks are, and are not covered.
- Declarations page
- Insuring clause
- Rights & Duties
Let’s look at each of these in some detail …
1) The “Declarations” page, often the first page in your policy, will outline:
- Who is covered (e.g. school, faculty, volunteers, etc.)
- What is covered (e.g., acts of negligence, accident claims, buildings, etc.)
- Limits of coverage/deductible (e.g., $ 1,000,000 annual maximum with a $ 2,000 deductible)
- Term of coverage (e.g., coverage effective date of 2/1/11, termination or renewal date 2/1/12.)
2) The “ Insuring Clause” will in narrative form, explain in detail who’s insured for what occurrence, and usually includes any “buy-backs” or option coverages purchased such as “Cyber Liability”. These, however, may be listed in a separate section, but be aware of them.
3) Critical terms (eligible person, eligible claim) listed throughout the policy, will often be CAPITAIZED and always bolded, and are all listed in the “Definitions” section. If any are unclear—ask your broker to explain!
4) The “Exclusions” section will, of course, list those things NOT insured (e.g., loss due to war). While “typically” true that if a risk or exposure is not excluded persay, it then is included; that said, if there any specific risks you’re concerned about, and you do not see them specifically included or excluded….call your broker and ask.
5) Non-renewal/Termination will explain both your rights and the carrier’s rights to end the relationship.
6) Finally, the “Rights and Duties” section will clarify what your rights under the policy are, e.g., to have your claims responded to within 30 days; and your duties, e.g. to report any claim or even a threat of claim as soon as reasonably possible. Some policies may look to exclude coverage if you do not comply with these duties.
By purchasing an insurance policy, you are establishing a legal and contractual relationship with your insurance company - via that document. So make sure you understand your policy, and that you are in fact transferring the risks as you intended to. Do this now, rather than at time of claim!