Is Your Commercial Risk Over or Under Insured?

Is Your Commercial Risk Over or Under Insured?

The effects of coverage gaps and overlaps on your bottom line

It happened – your business experienced an event that triggered an insurance claim. With risk being inherent to all business operations, this means that most organizations have to deal with the insurance claims process at one point or another, even if they have a deep-rooted culture of risk management and safety. Should you have to initiate a claim, you want the process to go as seamlessly as possible. Unfortunately, gaps and overlaps in your coverage and insurance portfolio can throw a wrench in the process. Here’s Why: 

Under covered and Overconfident

Both insurance portfolio and coverage gaps impact your ability to obtain monetary recourse after a triggering event.

  • An insurance portfolio gap describes instances when an insured doesn’t have a policy in place to cover an event.
  • A coverage gap can occur when you do have coverage for specified events, but exclusionary language, restrictive sub-limits, or inadequate limits create a discrepancy in the amount of financial protection you thought you had, versus what you do have.

The financial fallout from accidents can quickly add up, reaching thousands or millions of dollars, which poses a significant threat to your business’s balance sheet.

For example, if a building is damaged after a natural disaster but you haven’t updated its valuation in years, the limits on your property insurance policy might not be high enough for you to have all the funds you need to rebuild.

Too Much of a Good Thing Might Not be Good

On the other end of the spectrum, let’s say you’re over-insured or have overlapping coverage. While it’s certainly better to have coverage than not, these scenarios aren’t ideal for several reasons. For starters, you’re unnecessarily spending money that could be allocated to other areas of your business.

Duplication of Coverage

When it comes to overlapping coverages and triggering events, determining which carrier is covering the claim, the proportions of payment and the primary payor can amount to delays in the claims process and potential frustrations. Though a broker should be able to act as an intermediary on your behalf, you’ll still have to dedicate time and attention to answering questions carriers might have regarding overlapping policies.

Appropriate Limits for Clients

Needs An effective broker also helps clients determine the appropriate amount of coverage. As exposures change, that might mean reducing limits to avoid overpaying for coverage that is not needed. To establish “the right” limit, it is important that a broker review exposures, understand the client’s industry, evaluate loss trends, and review benchmarking to land on a limit that best fits the client’s needs.

Managing your insurance portfolio

Without the expertise required to navigate the complexities of insurance, it’s easy to fall victim to the pitfalls of insurance gaps and overlaps, which is why we recommend working with a trusted broker partner who can review your insurance portfolio and provide data-driven recommendations about how to best align coverage for your risk in the present, and as your business experiences changes.

 

Connect with our team today for a policy review to ensure you’re properly covered to protect your business.

This material has been prepared for informational purposes only. BRP Group, Inc. and its affiliates, do not provide tax, legal or accounting advice. Please consult with your own tax, legal or accounting professionals before engaging in any transaction.

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This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. Baldwin Risk Partners, LLC (“BRP”), its affiliates, and subsidiaries do not guarantee that this information is, or can be relied on for, compliance with any law or regulation, assurance against preventable losses, or freedom from legal liability. This publication is not intended to be legal, underwriting, or any other type of professional advice. BRP does not guarantee any particular outcome and makes no commitment to update any information herein or remove any items that are no longer accurate or complete. Furthermore, BRP does not assume any liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Persons requiring advice should always consult an independent adviser.

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