Insurance Buyer s Guide For Property Managers

Transcription

1 tm Take Cover Insurance Buyer s Guide For Property Managers Prepared By: Andreas Schwartze, MBA, CIP The Insurance Office 92 Lakeshore Rd., East. 2 nd Fl. Mississauga, ON L5G 4S2 Tel: Fax: Web: Take Cover is a registered trademark of IMS Insurance Marketing Services Ltd. Additional copies can be printed from the Take Cover web site at

2 Forward As a property manager, you have been entrusted with the care and management of an important asset that generally belongs to one or more of your clients. Under the terms of a management contract, your fiduciary responsibility extends to include all contracted activities for which you are being paid a management fee. This responsibility is greater in law than most. You are in essence a bailee... a word defined in law as one who has been given custody of another s property and is being paid while that custodial relationship exists. Most property managers purchase Errors and Omissions insurance. This protects them in the event that someone threatens or initiates a legal action in which negligent management is alleged. E&O insurance contracts are pretty broad and they do not exclude much, as they are liability insurance contracts, not property ones. However, while the exclusions are few, there is one important restriction that you should be aware of. Insurance errors are typically not part of an E&O insurance contract issued to a property management firm. The logic is obvious. Insurance companies do not want to see a property insurance loss settled by an E&O policy because someone forgot to insure the building. Slip and fall claims do not belong in an E&O policy just because someone forgot to arrange some general liability insurance. After all, you cannot buy an insurance policy that pays in the event that you forgot to renew your auto insurance. Makes sense. Therefore, as property managers we need to be particularly diligent in the handling of our client building insurance matters. Mistakes can be costly and the strain on client relationships can be terminal. This guide is intended to assist you in the process of dealing with the complexities of insurance proposals. It is simply laid out and it is mostly in checklist form. Most property managers are targets for insurance sales people who love to promise savings of 10%, 20% and more. Premiums saved are irrelevant if the claim result is unsatisfactory. As you go through this guide, please remember two important things. We are assuming the following: 1) That your management contract requires you to arrange insurance. If, by any chance this is not the case, do not step outside of your mandate by arranging insurance without the owner(s) prior approval. 2) 75% of all insurance people in Canada spend 100% of their time on auto and home insurance. 3 out of every 4 insurance people will have no commercial insurance experience whatsoever. Recruit your insurance expertise carefully, as you would any other professional service provider. A solid education helps! Having stated the above...let s proceed to get you comfortable with buying insurance for your clients...if you have any questions, send them to andy@takecover.ca and put Buyer s Guide Question into the subject line of your . Phone calls are welcome too, of course.

3 The Insurance Broker A few words are in order about insurance brokers. While these may not apply to absolutely every one of them, the vast majority falls into this category. 1) Insurance brokers are not in the business because it was their career choice. Insurance is not a destination career and most people fall into it for one reason or another. It is often said that insurance people are those who have already failed at one or more other careers. For some, this is no doubt the case. Insurance companies do not have access to the brightest of the bright. Other professions are more fortunate. It s sad, but it s very true. 2) In Ontario, insurance brokers are regulated by Registered Insurance Brokers of Ontario under the RIBO Act, passed in This government created regulator issues licences and monitors discipline under a statutory code of ethics. However, only a grade 12 education is necessary and the licencing process can be completed in 2 working weeks. Think of it...grade 12 and only 10 days in school is all it takes for someone to be able to present him or herself to you as a registered insurance broker. 3) Insurance brokers who knock on your door are mostly paid by commission. Typically they work on contract for a back office. No sale, no paycheck. As we all know, commissioned sales can sometimes be very stressful, especially if the month is almost over, and not a lot of business has been achieved. Insurance is complicated legal work and is often overshadowed by the urgency of closing the commissioned sale before the month s end. 4) Insurance companies totally rely on the representations of the broker. What he, or she, tells the insurance company is deemed to be true. The broker works for you and if the truth is distorted your insurance contract may be voided. As the insurance buyer, you are responsible for the integrity of the broker as far as the insurer is concerned. The law backs that up. It s no different than if your chartered accountant makes a mistake on your tax return. You always pay the penalty; the tax department didn t choose the accountant. 5) Most important, and hardly ever mentioned, is that fact that not all insurance brokers are independent. Some 12 major insurance companies in Canada have a controlling interest in independent insurance brokerage organizations. This enables these companies to deliberately steer business in their direction. Many of these organizations do not have complete access to the insurance market nor the ability to influence the market.

4 So, as you interview an insurance broker, here is the first important checklist. We ve left spaces so that you can make notes beneath each item: a) What level of general education has been achieved and from where? b) What industry education has been successfully completed? c) How long has he/she been licenced? d) What portion of his/her time is spent on auto/home insurance? e) How much legal training does he/she have? f) Does an insurance company own his or her back office or is the back office completely independently owned? g) What other support services, other than insurance broking, are provided? Now you have a better picture of who wants to work for you...

5 Getting The Proposal Right We realize that most insurance buyers are not experts in the field. But then neither are most insurance buyers knowledgeable lawyers or engineers. But having decided on which broker to work with you now need to make certain that the insurance contract(s) are honestly and fairly negotiated. In addition, you want to be certain that there are no surprises coming your way after you have accepted the broker s proposal. In Canada, courts that preside over legal actions involving professional incompetence always, always, and always look to see if the defendant service provider has a consistently documented system for providing services to its clients. By using the same set of standards, over and over again, and keeping proper records, you will always have an excellent chance of defending your professional record. You do it with accounting and other services. Insurance buying should be no different. Here is the next and final checklist...read it carefully and be certain that all items are covered: 1) The proposal should be in writing and signed by the broker. Forget . 2) The name of the brokerage firm and the name of the proposed insurer should be clearly shown. 3) Insurance details should be sufficiently outlined so that any knowledgeable insurance underwriter can issue an entire insurance contract on the basis of the proposal. One page is definitely not enough! 4) The broker should confirm in writing that he or she has actually visited the property and inspected it. In addition it should be confirmed that the proposed insurer has been given full and accurate information as to the nature of the property, including claims. The broker must be prepared to pay any increased premium costs if the insurer later cancels due to non disclosure and you have to re-buy insurance elsewhere at a higher premium. Disclosure to the insurance company must include an accurate claims history.

6 5) The proposal should not be subject to any conditions. It should be fully guaranteed and not rely on a later inspection or other requirement. Insist on a guaranteed insurance proposal and accept no cancellation period of less than 90 days. 6) The insurance contract proposed should not be subject to signing of any document. Any requirement for the completion a Statement of Values should be waived by the proposed insurance company. This requirement should be non negotiable on your part. 7) You need to know if the insurance contract wordings proposed are ones being provided by the insurer or have they been custom developed for commercial real estate properties? Standard insurance industry wordings just aren t good enough anymore. 8) The broker must confirm that the insurance contract being proposed is acceptable to, and meets or exceeds the requirements of any lenders that have mortgages on the property. This confirmation must include the fact that the lender s insurance consultants have received a copy of the proposal and have approved it. 9) Who is the independent insurance adjuster assigned to handle claims? What experience does that person have handling unfounded slip and fall cases, which after all are the key contributor to higher premiums? None of the above involves any work on your part. By making certain that an insurance broker understands your need to do proper due diligence, on behalf of your client, you give the clear message that you are a professional who wants to be treated the same way. If, at any later time, an owner questions what you have done with his or her building s insurance you will be able to point to an established procedure that you follow for all of your owner clients. Additional copies can be printed from the web site at Periodically we will update this document in order to keep it current