Wednesday, November 3, 2010

Being Insurance Poor

I was invited to speak to a class of vocational students about insurance. In reviewing the various types of policies, their coverage and usual costs I asked the group, "So what do you think of all this stuff? Does it seem fair?" And one student said, "No, it's not fair. You can't afford it. It's all so expensive."

I had to agree with the reasoning that, if you bought all the coverage you needed, you probably couldn't afford it. Higher limits for auto and home liability coverage, flood insurance, life insurance, disability income insurance, health insurance. You would be basically sending a great percentage of your monthly income to pay for all the premiums.

I then turned around and wrote the word TRAP on the board and, in the last few moments before their dismissal, proceeded to explain the concept of Risk Management. I'll explain that acronym down below.

Basically the matter is that we're all dealing with risk everyday and we owe ourselves and others and certain degree of responsibility. Whether we like it or not, the law and society set expectations for that - so we either accept it and provide for it, or suffer the consequences of being ill prepared.

In a nut shell: Non-fortuitous events happen in life. Sometimes causing US personal loss or sometimes through our actions, causing OTHERS a loss through bodily injury or property damage.

The possibly large and unknown figure is the liability for which we can be held to account for which we've caused others. Imaging causing an auto accident which killed a young father and seriously injured a child. Do you imagine the mother of that child will be content with your minimum limit bodily injury amount ($25,000 per person)available to her for that accident? What many people don't realize is that the insurance company can settle the loss for policy limits and then walk away but you are still responsible to them for the total injuries that may be assessed to you by the courts for the tort you've caused. So higher limits are essential. That's where you can truly find yourself insurance poor.

It is pragmatic to accept some losses for yourself when they are fixed and certain and sustainable. For instance you don't need to pay annually for Comprehensive and Collision coverage on an old car that has a relatively low value. If you would either take out a small loan or pull from savings to obtain a replacement vehicle, it pays to save the annual premiums and accept this part of the risk. Then use that savings to buy higher and more responsible liability limits.

So let's touch on this TRAP term I mentioned above:

In relation to the risk in your life. You're exposed to all kinds of risk and there are generally four approaches to manage that risk.
T - Transfer the risk to an insurance company in exchange for a fixed premium
amount. That is trading uncertainty for certainty.
R - Retain the risk. When it is an affordable and known quantity, like the older
used car in my example above, it can make since to not insure it. It is possible
to buy your jewelry twice by covering it to the hilt with expensive premiums.
A - Avoid the risk. If you can't afford to lose it, did you need to buy an expensive
ring, watch and earrings? Then the premiums just add to the cost of ownership if
you need to insure it. So sometimes avoidance makes sense too.
P - Protect the risk. Take steps to help diminish risk. Buy and use a SAFE for your
guns and jewelry. Keep up with your purse, lock the car. Don't leave bicycles or
clutter out in front of your house, etc.

Many of us use a mixture of these methods, insuring the part we don't want to retain and protecting things because we would rather not incur a loss and the deductible anyway. But taking the time to assess risks in your life and choosing to insure those parts that would cause financial devestation is what good personal risk management is all about.

Thursday, October 14, 2010

Another Hurricane Season Almost By - What's next?

Shshshh! Don't tell mother nature, but she missed us again! We're not actually through the season until late October when we should be safe - but odds are reducing along with the temperatures.

I was approaching this season with a feeling of dread which changed into relief, and that turned into tentative elation. Could we have actually missed it again? Despite all the terrible prognostication out of the National Hurricane Center, we've managed to get out of this again practically unscathed. Dr. Gray fails again. You just can't predict these things - no matter how much computing power or knowledge you've gained.

Now that is over, but here comes Halloween when people put candles into old dried pumpkins on their front porch. Out of the mundane comes an "oops". And it can be a biggie - imagine burning the house down just trying to please little Johnnie for the holidays. Be careful out there!

Accidental fire is one concern - whether it comes from open flame, an unattended pot on the stove, or faulty electrical wiring, the fact is that is most often avoidable by taking proper care.

On the other hand, theft is a loss that affects you making you a victim no matter whether you've taken appropriate care or not. There have been some reported opportunists hitting unlocked cars and even pulling right into driveways and cleaning out the valuables in 6 minutes. Keep things locked, leave lights on, watch neighbors' houses, even during the day.

The most frequent loss people are surprised by is Sudden Accidental Water Discharge. That can come from an air conditioner drain pan overflow, a stopped up toilet with a leaking flapper, or just a leak from a dish washer. Suddenly finding water in the house where it doesn't belong should be treated like a major disaster. Because it can cause permanent, yet often times avoidable, damage if not tended to properly.

Extra care can be all it takes to avoid loss. We can't control mother nature, but there are some areas we can have an effect.

Thursday, July 1, 2010

Alex Blows By

With a certain sigh of relief I watched the storm miss the majority of Texas. One company I represent informed me that it only received about 26 reported claims so far from the Texas Rio Grande Valley. That is very fortunate news.

I am sure that the news is not so good for those in Mexico where wind and flood damage is probably extensive. It strikes me curious that the Weather Channel and none of the other major networks bothered to go south of the border to report on the actual storm effects near its center. Do they not have passports?

All insurance writing is suspended until about 24 hours after the storm has made landfall. We will be cranking back up and transacting business as normal starting tomorrow.

On another note the US Senate has approved the extension on the funding of the Flood Insurance program until September 30, 2010. So for a while, again, we can write this coverage. I would hope that more people are considering the possibility that a flood could happen at their home and even a few inches of water in their house can be devastating. As always, we encourage taking out a flood policy - even when you're not in a high risk 'special hazard' area. Over one quarter of all claims occur in these areas. Take care and stay dry.

Monday, June 28, 2010

Too Much for a Sound Bite

As an established insurance agent in my town, I was interviewed today for an article for the Victoria Advocate on the subject of Wind and Flood insurance.

Hurricane Alex (currently still a Tropical Storm) is entering the Gulf, so it and its affects are all the news that is worthy of print right now. Obviously, trying to discuss and convey an understanding about complex insurance contracts, their underwriting guidelines, legislative policy abuse, the affect of weather... you get the picture -- it just becomes a mess in the interpretation. So I thought I would set a little bit of it straight.

The biggest gaff, is that Flood Insurance does not cease to be available whenever a storm enters the gulf. What is true however, is that its purchase won't alleviate the damage pending from that particular storm because flood insurance has a 30 day waiting period, except when purchased as required by law when closing on a new home with a mortgagee. Secondly, it is true that the legislature has played political ping-pong again with this critically needed federal program, and again failed to extend it past its most recent moratorium last month. So nobody can purchase it for the time being.

Concurrent to this, the other happenstance is that casualty insurance ceases to be available generally in coastal counties of Texas, (and I believe the other coastal regions, because a tropical storm is encroaching on its coast. Whenever a tropical storm enters the gulf, or for many carriers, once it has simply passed North of 20 degrees and West of 80 degrees, they cease to offer new or additional coverage until its effects have passed inland. This is not only true of dwellings but even for autos and other lines of coverage.

So it provides for a bit of panic with last minute attempts to secure coverage on the part of some would-be opportunists or procrastinators. Either way, they are out of luck.

Since I hate getting mis-quoted, I don't know why I willingly try to be interviewed. Like so many issues in the news, whatever the medium, you can find the issue being misconstrued, or worse, misrepresented with unnecessary bias. The more complicated the issue being discussed... well you know how that goes. I just like to try to help educating the public whenever possible.