Insurance Programs aka “Risk Purchasing Groups”
Compared to Individual Insurance Policies

In the commercial insurance marketplace today, there are several good “programs” which compete very favorably with the standard “polices” written by many carriers.

Since these are widely used and often misunderstood, we’ll take a brief look and do a comparison of these two ways to cover your property.

Programs can be either  (1)“Risk Purchasing Groups” or (2) “Risk Retention Groups”.

1. “Risk Purchasing Groups” are groups that are formed, usually by a “Program Manager” which allow individual owners or property managers to pool their buying power and therefore negotiate better insurance terms both in coverage and pricing than an individual owner would be able to find in the marketplace.

2. “Risk Retention Groups” are groups that are formed to “self insure” the losses. Essentially, the group pools the money it would have spent on insurance and invests that money ready for payment of claims, sometimes buying an insurance policy to handle really large losses.

We will limit our discussion to “Risk Purchasing Groups”, since “Risk Retention Groups” are more risky and often have a provision to charge insureds higher rates if the program experiences greater losses than anticipated.

“Risk Purchasing Groups”, typically provide better coverage than one would find in a standard insurance policy. These embellishments often include:

1. Building Coverage that is blanketed, meaning that your building is part of a high blanket limit of insurance which provides more than enough coverage to fully rebuild any building in the program. This takes the guesswork out of determining how much building coverage is enough.

2. Loss of rental income coverage is typically covered for as long as it takes to rebuild the damaged property rather than just for one year as most polices provide.

3. Building Ordinance Coverage is included with high limits rather than having to be purchased separately. This coverage is usually included with very low limits or may even be non-existent with an endorsement and extra charge on a standard policy.

4. Mechanical Breakdown (aka: Boiler & Machinery) – This is typically another optional coverage but is included in most “Risk Purchasing Groups” up to the full building value at no extra charge.

The most important thing to keep in mind when reviewing “Risk Purchasing Groups” is to be sure that there are no shared limits. A shared limit means that the losses of one insured may affect the coverage of other insureds. Of several programs that we use on a regular basis, none have shared limits. So when a loss occurs, it has no affect whatsoever on the coverage of other insureds using the program. The limits of the policy are yours alone just as if you took out an individual policy.

“Risk Purchasing Groups” typically use several carriers who share in the loss. It’s common to find that one carrier writes the property side of the program and a different carrier writes the liability, etc. It is also common to find that coverage is “layered” amongst various carriers so that Carrier “A” will take the first $5 million loss while carriers “B, C , D”, etc. take tiers of coverage such as the next $5 million of loss, then the next $10 million and so on. All of the insurance carriers in the programs we use are rated at least “A-Excellent” by the rating services so that the coverages will be accepted by all lenders as meeting the requirements set out in their requirements to their borrowers.

One more thing to keep in mind with “Risk Purchasing Groups” is their longevity and pricing stability over a number of years. The programs we use have all existed at least a decade showing stability in both their pricing and coverages.

This year, at least one risk purchasing group will be non-renewed on December 31 because the insurance carriers decided to close the program. This was a program put together for a single insurance broker or property manager and did not have enough size to keep the carriers interested. They usually want at least $5 million in premium to keep a program viable.

In Summary, a “Risk Purchasing Group” may be a way to provide broader coverage at a lower cost than a conventional insurance policy, but one should keep in mind these 3 basic things when looking for a group to be in:

1. Be sure that there are no shared limits within the program – in other words – all limits stated are available completely to the property owner for each and every loss at that property regardless of what other losses the group has experienced a whole.

2. Be sure that all carriers in the group carry a rating of at least “A-Excellent”

3. Ascertain that the program you are looking at has a proven track record in providing consistent coverages at level pricing for at least 5 years.

David Gordon, CLU is an independent insurance broker who has been providing insurance products and consulting to commercial property owners in the Bay Area for over 25 years. Feel free to contact us at 877-877-7755 ext 6972 or DGordon@GordonInsurance.com for more information on any insurance matter or if you would like to see a particular subject addressed in future issues.

Gordon Associates Insurance Services, Inc. is a full service, independent insurance brokerage providing products that cover a wider range of insurance needs. We specialize in serving Commercial Real Estate owners and managers. We insure apartment buildings, shopping and industrial centers, office buildings, homeowner and condominium associations, businesses and more.
As a broker, we represent you, not a particular carrier. And we do it with a Smile!
 

Source: http://www.GordonInsurance.com