Winter 2012
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Bret Dixon Insurance News
Our newsletters are intended to keep you up to date on pertinent industry news and offer more in-depth insight into various types of coverage and endorsements.  We publish our newsletters at least once each quarter.  We hope you enjoy it.
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Debit Card Fee Reduction: Who's Getting Your Savings? 

Effective October 1st, the Durbin Amendment took effect and the cost to process most debit card transactions became substantially lower.  This affects U.S. Restaurants that accept credit and debit cards for payment.


To illustrate, the cost for a credit card processing company to process a $40 debit card transaction before October 1st was $.58 ($40 x 1.19% + $.10 per transaction).


Now, this transaction will cost the processor $.24 ($40 x 1.19% + $.10 per transaction).  That's a savings of $.34.


An establishment doing $40,000 a month in sales with an average check of $40 means 1000 transactions per month.  Assuming half of those transactions were paid on debit cards this would represent a potential savings of $170 per month and over $2000 per year, but only if those savings are passed on to the restaurant.


One issue with the Durbin Amendment is that it didn't mandate that merchants receive this savings.  As a result, many credit card processors are reportedly pocketing the savings and not passing it on to the merchants (you).


How do you know if you are getting the benefit of the debit card fee reductions or if your processor is?


Did you receive a notice from your credit card processor regarding the Durbin Amendment?  If not, it's likely that your processor plans on keeping the savings and not passing it on to you.


Compare the processing fee percentage on your September statement to the fees on your October statement.  Take your total charges and divide by the total sales for each month.


If you're getting any of the savings from the Durbin Amendment, your October processing cost percentage should be lower than the September percentage.  If it's not, it's likely your processor is keeping your debit card savings.


Operating in an industry with razor thin profit margins necessitates being extra diligent about watching where every nickel you're spending is going.  If you're not realizing any savings from the passage of the Durbin Amendment it means you may be set up to overpay for your card processing to the tune of thousands and possibly tens of thousands of dollars per year.


Find out what's going on with your Durbin Amendment savings and talk to your processor if you suspect you're not getting yours. 



Controlling Workers Compensation Costs 
In today's economy, many people are struggling to keep their heads above water.  Employment rates are up, unemployment income might be running out, and health insurance costs are up and possibly unaffordable for many people.  Since slipping into a recession several years ago, the insurance industry has seen a steady rise in claims of all types.  Small property claims that may have been paid by the policy holder are now being turned in.  Theft of money, goods and materials has spiked.  General Liability and Workers Compensation claims involving injuries to individuals has followed a similar trend.
For the sake of this article we'll focus on employees because it dovetails with a piece we wrote a couple of issues back about injuries that were turned in as work-related, but actually happened off-hours, away from your business.
Workers Compensation claims are up and a proximate cause would seem to be much of the same: money is tight, some folks are going without health insurance, and claims that might've gotten turned into an individual's medical provider are now being turned into their Employer's Workers Compensation carrier fraudulently out of last resort. 
There are a few things you can do to prevent this. 
Video Tape
We've espoused the benefit of security cameras before, usually for monitoring patrons.  Sometimes, having cameras in employee-only areas have benefits as well.  If your building and camera system can handle the extra camera inputs, having a camera in your stockroom, kitchen, garage, workshop and back door or loading dock can deter would-be fraud.
Posted Warnings
Written and posted Safety Procedures may bail you out if an employee feigns a work injury to cover-up an off-the-job injury by doing something so illogical you wouldn't think anyone would ever do them.  Putting written behavior expectations (no running, no horseplay, safe handling procedures for chemicals, proper procedure for moving/lifting heavy objects or retrieving objects from high shelves, etc...) in your employees' hands can give you a leg to stand on if an employee is injured doing something stupid.
Accident Insurance
There are even types of Accident Insurance that you as an employer can establish for your employees, at no cost to you, that would cover them for off-the-job accidents, thereby keeping that claim off your your business' Workers Comp policy.  Imagine if employees injured off-the-job had a disability policy to turn to for ongoing expenses, rather than looking to your Work Comp policy for benefits payments. 
Spotlight On: Aggregate Limits    
Most liability policies contain something called an Aggregate Limit.  An Aggregate is the maximum dollar amount of coverage available under that policy for the designated policy term.  There's usually an Occurrence Limit as well, which is the maximum dollar amount of coverage available for any one incident occurring in the policy term.  A potential problem exists, when the Occurrence Limit is the same as or nearly as high as the Aggregate Limit.  For the purposes of this example, we'll focus on Liquor Liability, although the scenarios provided could just as easily apply to General Liability policies as well.

When comparing Liquor Liability policies or quotes, there are several elements to consider.  Some of the most common include Assault & Battery coverage and sub-limits, entertainment exclusions, and restrictions on premises limitations.  One area that can go overlooked is an Aggregate Limit.

A few insurers write Liquor Liability policies without an Aggregate Limit, meaning there is no limit on the total amount the policy will pay out during it's term.  However, many insurers in the marketplace write policies with matching Occurrence and Aggregate limits, such as a $1,000,000 Common Cause limit and a $1,000,000 Aggregate limit.

Each time a claim is paid, it reduces the aggregate amount of insurance remaining to pay additional losses.  Once that amount is exhausted, the insurer is no longer obligated to pay damages or defend claims subject to the aggregate amount.  This remains the case until the policy is renewed, beginning a new policy period, or the insured takes out another policy.

As an example, Leo's Bar & Grill has written in their name a liquor liability policy with a $1,000,000 limit per Common Cause and a $1,000,000 Aggregate limit.  Their annual policy period begins January 1st.  They have the following claims:

Claim 1 - On February 2nd, a patron leaves the establishment in her vehicle and collides with another car carrying a couple on their way home.  The husband and wife sustain multiple injuries, some of which require surgery and a lengthy rehabilitation.  The total value of their claim is $750,000.  With a $1,000,000 occurrence limit and a $1,000,000 aggregate, the policy is sufficient to cover the $750,000 settlement required. Upon settlement of the loss, however, the Aggregate limit now available is only $250,000.

Claim 2 - On Memorial Day weekend, a group of friends meet up at Leo's Bar & Grill.  They stay for a few hours, then leave together to go to a house party.  During the commute, the vehicle goes off the road in a single car accident, killing the driver and seriously injuring two of the passengers.  Multiple lawsuits are filed against Leo's, but due to the February claim, only $250,000 of the aggregate limit is available.  Upon settlement of this second claim, the policy limits are now exhausted.

Claim 3 - On October 20th, a man meets up with a friend at Leo's Bar & Grill to watch a football game.  When the game is over, he leaves and drives across down to another bar.  On the way, he collides with a minivan carrying a mother and her two children.  The Aggregate Limit of Leo's Bar & Grill is exhausted, so no coverage, and more importantly, no legal defense, is available from Leo's insurer.  The establishment is left to defend and settle this third claim on their own.

The timing of these claims illustrates the problem with an aggregate limit: the exhaustion of the limit of the policy due to prior claims may not be realized until months or even years after the incident occurs; because the final dollar amount of a loss will not be known until the claim is settled.  In all likelihood, the insured may be unaware that their limits have been exhausted at the time that the next event takes place.

If an insured has a liquor liability policy with an aggregate limit, they risk running out of coverage without even knowing it, because incidents may have occurred that have not been settled or even reported yet.  With the amount of time allowed in most states to file a liquor liability claim, the potential for a problem with Aggregate limit is more significant that most realize. 

If every liquor-related accident or incident came to light in a prompt, timely manner, business owners would be able to side-step most of these issues by acquiring a second liquor liability policy when the first one appeared in jeopardy.  However, that just isn't the way most claims develop.  As it stands, some additional liability protection may be afforded by acquiring an umbrella or excess liability policy, but beyond that, good fortune and careful consideration of an Aggregate Limit are the best options available to business owners. 
Wintertime Tips for You & Your Vehicles  
Last issue, we looked at ways to prepare your building for the winter cold.  This issue, we'll turn our attention to you and your vehicles.  Inclement weather pays no mind to anyone's schedule; when you head out on errands or to work, conditions can be just fine.  But in the span of a few hours, things can deteriorate quickly.  Here are some tips to be prepared and safe when you're out and about this winter.

Before Winter Storms & Extreme Cold

  • It's never too late to put together an emergency kit.  Consider including: a shovel, windshield scraper & small broom, flashlight, battery powered radio, extra batteries, water, snack food, matches, extra hats, socks and gloves, a first aid kit, a pocket knife, a small supply of any necessary medications, blankets, tow chain or rope, road salt and sand, booster cables, emergency flares and perhaps a fluorescent distress flag.
  • Make a Family or Business Communications Plan.  Your family may not be together when bad weather moves in, so it is important to know how to contact one another, how you'll get back together and where you'll rendezvous. 
  • Stay up to date on weather forecasts and, if conditions are threatening to worsen, minimize travel.  If travel is necessary, make sure you have supplies in your vehicle.
  • Winterize your vehicle - have a mechanic check on:
    • Antifreeze levels - ensure they are sufficient to avoid freezing
    • Battery & Ignition System - should be in top conditions and battery terminals should be clean
    • Brakes - check for wear and fluid levels
    • Exhaust System - check for leaks and crimped pipes and repair or replace as necessary.  Carbon Monoxide is deadly and usually gives no warning.
    • Fuel and Air Filters - replace and keep water out of the system by using additives and maintaining a full tank of gas.  A full tank will keep the fuel line from freezing.
    • Heater and Defroster - ensure they are working properly
    • Lights and Flashing Hazard Lights - check for serviceability
    • Oil - check for level and weight.  Heavier oils congeal more at low temperatures and do not lubricate as well.
    • Thermostat - ensure it's working properly
    • Windshield Wiper Equipment - repair any problems and maintain proper washer fluid level.
    • Install Good Winter Tires - make sure your tires have adequate tread.  All-weather radials are usually adequate for most winter conditions.

During Winter Storms & Extreme Cold


  • Stay indoors during the storm.  If that isn't feasible, at least try to minimize your travel.  Follow main roads, avoiding untreated and/or more treacherous back roads and short cuts.  Make sure someone else knows your travel plans.
  • Dress for the weather - if you must go outside, wear several layers of loose-fitting, lightweight, warm clothing rather than one layer of heavy clothing.  The outer garments should be tightly woven and water repellent.  Wear mittens or gloves, a hat to prevent the loss of body heat and cover your mouth with a scarf to protect your lungs.
  • Avoid overexertion when shoveling snow, which can bring on a heart attack - a major cause of death in the winter.  Depending on your age and fitness level, stretching can also be a good idea.
  • Keep Dry - change wet clothing frequently to prevent a loss of body heat.  Wet clothing loses all of its insulating value and transmits heat rapidly.
  • If you're outdoors for a long period of time:
    • Watch for signs of frostbite, including loss of feeling and white or pale appearance in extremities such as your fingers, toes, ear lobes and the tip of your nose.
    • Watch for signs of hypothermia, including uncontrollable shivering, memory loss, disorientation, incoherence, slurred speech, drowsiness, and exhaustion.  


Exercising Discretion with Minor Homeowner Claims  
We recently found this article about insurance companies tracking home claims and damage reports.  It's a couple of years old, but still relevant nonetheless. 

The focus of the article is this database called CLUE (Comprehensive, Loss Underwriting Exchange).  Some Insurance Companies subscribe to this database and use the data contained in it when underwriting a new homeowners risk.  It is said that not all insurers subscribe to CLUE, but in our experience, it's hard to find one that doesn't.

The database was created many years ago to watch for fraud and consumers who had a history of filing numerous claims.  However, in recent years, as the Homeowners market as a whole has been losing billions of dollars, more and more insurers are using the information to watch not just for signs of fraud or excessive claims, but homes that may be problematic as well.

For example, water damage claims are a particularly sensitive type of claim for many insurers.  Whereas a company may allow X number of claims over X number of years to fit within their underwriting guidelines, most often have more restrictive guidelines for water damage claims.  Their reasoning is that one incident involving water damage, may give rise to a later incident involving mold; and mold can be an expensive claim for insurers.

Homeowners coverage is designed to be there for the owner to cover accidents.  However, there are those who look at and use their Homeowners coverage as a substitute for maintaining their homes.  Rather than carrying a higher deductible and paying for smaller expenses out of pocket, some homeowners carry a low deductible and turn in minor claims that they could take care of themselves.

These things all add up, in frequency and total dollars paid out, and chances are your insurer is reporting your losses to CLUE.  For those who use Homeowners insurance for anything and everything, there will likely come a point where your insurer will say, "enough" and non-renew your coverage.  And then, you're left shopping for new coverage with companies that are going to be pulling your loss history in the course of quoting you, which will affect your eligibility as well as your premium.

In our experience, we've never heard of the sale of a home falling through because of a history of claims at that location.  This article seems to confirm as much, stating, "increased use of the CLUE database has not caused serious problems for the real estate industry."  But we would caution that insurers are only going to rely more and more on tools such as CLUE, and they'll continue looking for new ways to identify the risks that will be profitable from those that won't, so don't rule anything out.

Frequently Asked Questions About CLUE

What information is included in a CLUE report?
The report contains consumer claim information provided by insurance companies.  It includes policy information such as name, date of birth and policy number, claim information such as date of loss, type of loss and amounts paid, and a description of the property covered.  For homeowners coverage, the report includes the property address and for auto coverage, it includes specific vehicle information. 

Only loss history information is stored in Choicepoint's database.  No other source of data, credit reports, criminal records, civil lawsuits or legal judgments are incorporated into the CLUE reports.

Loss history is kept in the CLUE database for 5-7 years.

Who contributes to the CLUE database and how are reports used?
Only insurance companies that subscribe to CLUE can submit loss data and access reports.  Some companies choose not to subscribe to CLUE and losses with non-participating companies will not appear on reports.

Reports are used almost exclusively to underwrite and rate new policies.  Most insurers renewing existing policies do not access CLUE reports at renewal, likely because they already have loss histories for these properties in their own databases.

Why are insurance companies allowed to obtain a copy of my loss history report?
Under the federal Fair Credit Reporting Act, Choicepoint is allowed to produce a CLUE report for the following insurance-related purposes:
  • when the consumer reporting agency has reason to believe a person or company intends to use the information in connection with the underwriting of a consumer's insurance policy. This includes situations where the consumer asks for an insurance quote or applies for insurance.
  • when the request for the CLUE report is initiated by and at the request of the insurance company or agent.

Can I obtain a copy of my own report?
Consumers can request a copy of the CLUE report on property they own by contacting:
CLUE, Inc.
Consumer Disclosure Center
PO Box 105295
Atlanta, GA 30348-5295
Toll-Free Phone: 1-866-312-8076

You cannot order a report on property you wish to purchase.  Under the Fair Credit Reporting Act, CLUE reports can only be accessed by the owner, insurer or lender for the property.  You can ask the current owner of the property to order a report.

What about erroneous information and adding notations to a CLUE Report?

There is a procedure for filing a report for erroneous information, but there's no assurance it will be corrected to your liking.  If you discover an error on your CLUE report, an invalid claim report, or an incorrect loss payment, for instance, then you can contact Choicepoint directly and report the problem.  They will then contact the insurance company on your behalf and ask for clarification on the matter.  The company has 30 days to respond to Choicepoint and provide evidence that the information on the CLUE report is accurate.  Choicepoint will follow up with the insurer after 20 days if the company does not respond and again after 28 days without a response.  If the company does not respond within 30 days, Choicepoint will remove the information from the database.


As far as adding notes, only consumers can add any additional notations to their individual CLUE reports.  For instance, if a dog bite claim occurs and the homeowner gets rid of the dog, the consumer can write to Choicepoint to have the note added to their CLUE report.

Can CLUE reports distinguish between an inquiry and a claim?

Reports indicate losses by type.  Consumers should be aware that contacting their company or their agent to discuss an actual loss might be considered reporting a claim, even if the company does not end up making a claim payment.  This is because when a loss occurs, the policy requires the company to take specific actions within specified time frames.  Consumers should be specific as to whether they are filing a claim or merely making an inquiry into their coverage.


For instance, a consumer may contact his/her agent to report an event, such as a broken water pipe and determine the extent of coverage in order to decide whether or not to go forward with the claims process with the company.  The insurer might not indemnify the consumer for this loss for a variety of reasons: the amount of the damage may be below the deductible, the consumer may pay for the loss themselves, or there may be no coverage for such a loss under the terms of the policy.


If a consumer filed an actual claim and the insurer made no loss payment on this claim, this information would be recorded by the company and may appear on a CLUE report.


Can an insurance company use loss history from a prior owner to determine my eligibility to obtain insurance on the home?

If a company can show a relationship between the prior owner's loss and the probability of a future loss to the home, they may use the information.  There are currently no laws that specifically govern the use of the prior owner's loss history in determining your eligibility for coverage.   

Standard Market vs. E&S Markets   

As conditions continue to be difficult on small business owners, more and more seek drastic measure to cut insurance costs.  Sometimes this means they leave a "standard" market carrier for an "excess" or "surplus" market carrier because of a dramatic price difference.  However, most of those business owners who wind up in the E&S market are primarily concerned with the bottom line, and never consider why it's called an "excess" or "surplus" market.  Let's look at some differences.


Standard Market carriers are also called "Admitted Carriers".  They are called admitted because they are reviewed and licensed by a state's Department of Insurance.  Conversely, Excess and Surplus Market insurers are commonly called "Non-Admitted".  If you've ever been with a Non-Admitted carrier you would be able to recognize this because the dec page(s) of your policy would be stamped with a "Non-Admitted" warning stamp.  Some carriers may be "admitted" in some states and "non-admitted" in others.


Being an admitted carrier also means that the insurer must adhere to state-specific rate and form regulations.  Admitted companies must file their rates and policy forms with the state's Insurance Department and future changes must be filed for and approved.  They also pay into the state's "Guarantee Fund" which is used to pay losses to policy holders should another admitted carrier become insolvent.  There once was a time when an admitted carrier had as much a chance to become insolvent and unable to fulfill their obligations to their policy holders as pigs had of flying.  But as we've seen with the collapse of AIG, this is a whole new economic world we now live in.


Non-Admitted carriers are still rated for financial stability and regulated in other ways, but they're not policed by the the Departments of Insurance in the states in which they write policies.  So they operate in this sort of void where they make up rates on the fly, and the policy you buy one year could have coverage that is dramatically different from the one you buy the following year, because they got burned on a certain type of claim and decided to change their policy form on a whim.


They don't pay into any state "Guarantee Funds", so if you're insured with a non-admitted carrier who becomes insolvent while you still have months left on your policy, cross your fingers.  If you have a claim in that time, good luck filing a claim on a policy written with a company that's out of business.


Excess and Surplus carriers exist for risks that are declined by standard markets due to reasons such as new ventures, insureds with unfavorable or no loss history, undesirable class of business, or property that is of an age or condition such that a standard market insurer won't write it.  These non-admitted carriers make uninsurable risks insurable, but do so by organizing and operating in a way that allows them the flexibility to rate and amend coverage with limitations and exclusions that make your risk attractive again.  The coverage is not apples-to-apples with a standard market, so don't make the mistake of comparing the quote you receive from a standard market carrier to an excess or surplus carrier's quote solely on price.


Common Differences


Minimum Earned Premium

E&S Market quotes often have a minimum earned premium, usually 25%.  If you bind coverage with them, you're agreeing to pay a minimum of 3 months worth of coverage, even if you're still shopping other quotes or are considering a sale of your business sooner than 3 months.


Surplus Lines Taxes & Stamping Fees

Buying a policy through an E&S market adds certain taxes and fees for using a non-admitted carrier as well.  Additionally, most E&S Markets act as wholesalers, requiring you to get insurance through a broker, who often add policy fees of their own.


Lower Limits Available

Whereas a standard market insurer may offer liability limits such as $500,000 or $1,000,000, E&S markets may only offer $300,000 or $500,000. 


Inferior Property Coverage

Standard Market insurers may quote Replacement Cost coverage by default on your building and contents, but E&S Market insurers often quote on an Actual Cash Value basis - which factors in depreciation.  They may offer RC, but you'll certainly have to pay for the better coverage.


Exclusions, Exclusions, Exclusions

The old saying, "You get what you pay for" is one that generally rings true.  There's almost always a reason one quote is dramatically cheaper than another - prior losses weren't disclosed, sales receipts and/or payroll were undercut, or entire lines of business weren't quoted.  If you're looking at a quote from an E&S company, you're looking at a quote with plenty of exclusions.  Assault & Battery Coverage?  Business Income?  Utility Services?  Crime coverage?  Probably all excluded, unless you specifically requested it to be quoted.  Even then, it's no guarantee.  Take Crime coverage, for example.  You can request it be quoted, but with almost any excess carrier the coverage will be excluded unless you have a premises alarm in working order with a current contract for service before the crime loss occurs.  We've had dealings with companies where they've required a certificate on the alarm at policy binding or coverage would be excluded throughout the entire policy term.

Be sure to add our email address to your contact book to ensure that you continue receiving industry updates, informative articles and tasty tidbits.

Bret Dixon Insurance
In This Email
Debit Card Fee Reduction
Controlling Work Comp Costs
Spotlight On: Aggregate Limits
Personal & Auto Winter Tips
A Word of Caution on Homeowners Claims
Standard Markets vs. E&S

What happens 473 times every hour?

According to the Department of Transportation, traffic accidents happened at that rate in 2008 (the most recent stats we could find).  Are your personal auto limits up to par, or are you carrying low-limit, cut-rate coverage?


We offer a full-line of personal lines coverages for your home, auto, boats, motorcycles, RVs, and more.  Give us a shot at your next renewal to see how we compete. 

Click here for more information.

Upcoming Events & Holidays 

We will be closed Monday, February 20th for President's Day.
For those of you in Southern Illinois, BDI is helping organize this year's golf tournament for the Madison County chapter of the Illinois Licensed Beverage Association.  The MCLBA will be donating proceeds from this year's tournament to the Shriner's Childrens Hospital in St. Louis.
If you're interested in a team or sign sponsor, email us here for the forms.
It's a fun event for a great cause, please consider it.  The tournament is on Monday, May 21st at Rolling Hills Golf Course in Godfrey, IL. 
Carrier Corner 
We represent over 15 insurance carriers and have access to many more via brokers, but you may only know one or two that we deal with.  Each issue, we'll highlight one of our valued partners in this space. 

Progressive is an A+ ("Superior") rated company based in Ohio, and writes coverage nationwide.  You've probably seen a hundred of their commercials with "Flo".  We use them to write a variety of personal lines coverages such as auto, boats & personal watercrafts, motorcycles & ATVs, motor homes, manufactured homes and Travel trailers. 
They also write a bit of Commercial Lines coverage, such as Business Auto and Employment Practices Liability, and are quite competitive on both, even on a monoline basis.