EDUCATION AS CUSTOMER SERVICE (Excerpted)

By Catherine Trischan

Great customer service involves helping clients to understand how their insurance works. This helps to protect the client and the insurance agency.

Replacement cost coverage may not be enough to replace your building. The client who purchases replacement cost coverage on his building believes that, in the event of a total loss, he will get a brand-new building. We often describe replacement cost coverage as getting “new for old.” Replacement cost is usually calculated using a cost per square foot based on the construction, location, and features of a building. If a building is significantly damaged, though, other costs must be considered.

What if the town orders a building with major damage to be demolished? Now a partial loss has turned into a total loss. Unless ordinance or law coverage has been added to the policy, most commercial property forms will pay to repair only the damaged part of the building. Where will your client get the funds to replace the portion of the building that he was forced to knock down? And what if the building must be rebuilt differently to conform to more stringent building codes? This can be an issue in even small losses. Maybe your client will need to upgrade a sprinkler system or make changes to comply with the Americans with Disabilities Act (ADA). An unendorsed policy pays to repair or replace the building the way it was, something the town will not allow.

Let’s not forget, too, that our client may be shut down for longer than he would have been had he been allowed to simply repair the building. An unendorsed business income form will not typically cover this extended period of restoration. Ordinance or law coverage will help with all of this, but without our guidance, the client is unlikely to know that.

In addition to ordinance or law issues, what if the cost of labor and materials increases between the time the policy is written and the date of the loss? The cost of rebuilding and repairing property since the beginning of the coronavirus pandemic has increased dramatically. If the values on the property policy have not kept up with the rising costs, there will be inadequate limits to replace the property.

Educating your client about what can be done to enhance coverage so that the policy truly does pay to replace the building is one of the most helpful kinds of customer service.

Business income coverage does not replace income. Your client is a manufacturer that suffers a fire loss and is out of business for three months. During those three months, your client would have had gross sales of $1 million. The adjuster offers to pay $200,000. “Where is my $1 million?” asks your client. Business income does not simply pay to replace the lost gross sales. It pays the sum of continuing normal operating expenses and net profit.

What your client doesn’t consider is that during those three months many of his expenses stopped. He laid off many of his factory workers, he didn’t need to buy raw materials to manufacture his product, and his utility costs were lower than normal because production stopped. If he had been paid $1 million, it would have been a windfall. Not understanding how the coverage works, your client is frustrated and feels he purchased far too much coverage.

Educating your client about how business income works can help him to choose an appropriate limit of insurance and better understand what happens should he have a business income loss.