Property Casualty Insurance

Insure the machine and the money

For those of you who are in a dealership trade or manufacturing trade, take a minute think about each of your locations as an ATM machine that spits out a certain amount of dollars every single day. These dollars are used to pay for expenses like employee salaries, rent or mortgage payments, accounts payable, advertising, and anything that is not spent is profit that you get to keep in your pocket.

Most insurance policies will rebuild your ATM machine if it is damaged or if it burns down, but many owners fail to think about insuring the dollars that get pumped out of the machine each day. Without that steady stream of income, where will the money come from to pay the employee’s salaries while you are rebuilding?

Business income coverage is supremely important to businesses like grocery stores, auto dealerships, machine shops, and building material dealers – types of businesses that have a heavy revenue burden at the business location. In contrast, specialized contractors like plumbers, HVAC, and electrical contractors for example don’t need this coverage since they drive most of their income from jobsite’s away from the insured building. If a machine shop burns down, they are effectively out of business. But if an office of a plumbing contractor burns down, they can operate out of their truck until they can find a new location to set up.

There are some key things to think about when evaluating the business income needs of your business.

First, what limit do you need?

It’s important to take a look at your P&L and Balance Sheet when making this decision. If all of your revenue is brought in through a retail or manufacturing location then you should consider unlimited coverage or a limit of “actual loss sustained,” to insure you’re made whole after a loss.

Secondly, what is your deductible or coinsurance cost?

Each carrier treats their business income policy a little bit different. By reading the fine print, you will find that some carriers add endorsements to this policy that states you may be liable for a certain portion of the claim via a deductible or coinsurance.

Third, if you have multiple buildings or locations, does the policy blanket the coverage?

Blanketing means that each building is covered under a single limit. Blanketing can be by location, with all buildings at one address under one blanket, or it can have a blanket on the entire policy with all locations included. In some instances, you will find very small limits on buildings that should have a bulk of the limit applied.

In summary, many generic policies will have a small business income limit tied to their property coverages, but it’s certainly a smart move to ask for more. The cost for blanket actual loss coverage is a fraction of the total property insurance cost and its benefits far outweigh the investment. In my opinion, insure the money machine and the money it produces.

 

I recently partnered with a Machine Shop in Marion North Carolina that specialized in machining parts under 10 inches in diameter and in a tight tolerance grouping. After completing a policy audit, my team and I found that their new agent had changed the work comp code they were classifying themselves in when he signed up their account last year.

I don’t generally point fingers, but this was either a devious act to help get the total insurance package cost down to make the option look more attractive, or it was a plain ignorance to which code he should have used for the scope of work they were doing.

Moving forward, let’s use the following guidelines to assist in selecting the appropriate workers compensation class codes for classifying a machine shop risk. Keep in mind that scopes should always be consulted.

•Start with the assumption that the machine shop risk belongs in Machine Shop NOC code 3632.

•If the business does a variety of types of machining, manufacturing, repair or job shop work, the appropriate code is 3632.

•Code 3632 anticipates assembly.

•Automotive machine shops are classified to class code 3632.

•Scopes provides a list of work comp class codes that are somewhat related in nature to codes 3632 and 3629, but are not assigned to those codes.

•NCCI has identified Code 3629 as a frequently misclassified code. To clarify its use, the term "precision" has been removed from the Scopes Manual description and references to tolerance requirements have also been removed. The new description is "Machined Parts Mfg. NOC." Under new Scope guidelines, code 3629 only applies to risks that machine single-piece parts for others that meet all of the following: ◦Business operations or parts manufactured are not described by another code

◦No assembly of single-piece machined parts. (Assembly operations are defined as including, but not limited to: welding, fastening, inserting, pressing, and the joining of springs, ball bearings, gears, or other parts or components to any other part or component.)

◦No casting, forging, stamping, forming, or fabrication

 

•A risk can't have both the machined parts code 3629 and the general machine code 3632 on the same workers compensation policy for the same location unless the operations are actually separate and distinct businesses that meet the Basic WC Manual requirements for a second basic class code.

•A mass production machine shop that manufactures single-piece parts and that also does job shop work would probably be classified into the general machine shop code 3632 due to the job shop work, unless the job shop work is extremely limited.

•The name of the business should not be used to determine the correct work comp code that applies to the business.

•The machined parts code 3629 and the general machine shop code 3632 are both NOC codes, therefore neither class code is applicable if there is another more specific class code that applies. For example, a mass production machine shop that meets the requirements of code 3145, Screw Mfg, would apply code 3145, even though the risk also meets the requirements for code 3629.

•If the business makes a mass production product, check Scopes to determine if there is a specific code for it. An alpha type search (i.e. metal, gears, etc) in Scopes may lead to a specific class code. For example, pump manufacturing goes into code 3612, gear manufacturing into code 3635, and screw manufacturing into code 3145.

•Sometimes the type of machines used to make the product will give a hint of the correct work comp classification. For example, if the risk uses a majority of screw machines to make the product, code 3145 may be the appropriate work comp class code, even if screws are not the actual product.

•Code 3113 Tool Mfg.-Not Drop or Machine Forged-NOC is only applicable when the risk makes tools and dies for others. Code 3113 is not applicable to insured's that make tools, dies, or machine fixtures for use by their own business, even if they are made in a separate department.

•The same class code is normally used for both manufacturing and repair. For example, use code 3635 for both gear manufacturing and also gear repair. However, if a significant amount of other job shop work is done beside the gear work, then code 3632 would apply instead of code 3635.

•Quality control employees should be classified into the governing machine shop class code because quality control employees do not meet the Basic WC Manual definition of clerical employees.

•Driver code 7380 applies to employees who pick up or deliver items to customers. If those employees also do machine shop work, their payroll would be put into the highest rated classification of the jobs they do, unless separate payroll records are kept.

•When work is done at the customer's location, apply code 3724 to that work, including driving to and from the customer's location.

 

As a machine shop owner, it is extremely important to understand the role of coinsurance in your current commercial property insurance contract. Not know what your coverage requirements could really set you back in the event of a major claim.

Let's take a look at what coinsurance could mean for you. I'll start with the definition and formula and will move into a few examples.

Property Coinsurance Formula, If Carried Insurance is Less Than the Required Insurance

Amount of Recovery = Value of Loss x Amount of Carried Insurance/Amount of Required Insurance – Deductible

Property Coinsurance Formula, If Carried Insurance is Greater Than or Equal to the Required Insurance

Amount of Recovery = Value of – Deductible

Example # 1

Aaron Peacock’s Machine Corp of Boone North Carolina partially insures a property worth $700,000 for $495,000. The policy requires 100% of its value to be insured (aka 100% coinsurance) for full coverage, and has a $5000 deductible. Since the amount of insurance the company should have carried is 1.0 X $700,000 = $700,000 we will use that number in the denominator of our equation. If Aaron Peacock’s Machine Corp suffers a $100,000 loss the formula would work like this to figure out how much the company will receive from the insurance company:

$100,000 x $495,000/$700,000 - $5000 = $65,714.29

Example # 2

Peacock Tool Company in Hickory North Carolina insures their property for $650,000 and their building is valued by ISO at $700,000. They have a 90% coininsurance clause in their contract which means they need to be insured to at least to 90% of the replacement cost of $700,000. Here is the formula if Peacock Tool Company has the same $100,000 claim and they also have a $5000 deductible:

$100,000 - $5000 = $95,000

Notice that we did not multiply the coinsurance penalty to the claim amount. This is because $650,000 satisfied the minimum limit required which in this case is $630,000 ($700,000 [replacement cost] x .9 [90% coinsurance requirement from contract])

It’s important to know that the building value is determined at the time of a claim by a 3rd party organization.

Testimonials

Aaron is fantastic at explaining important coverages. I feel well protected and can sleep much better at night knowing what I have insured.

David Lytle

Universal Machine, Marion NC

About Me

Feel free to reach out. My email is [email protected] or call 828-434-3215. My office is in Boone NC and I service the North Carolina counties of Watauga, Wilkes, Avery, Ashe, Alleghany, Mitchell, McDowell, Caldwell, Catawba, and Burke. I can sell life insurance nationwide. Please contact me with any questions.

Small business owners across the US today have a tornado of expenses that seem to pile up and expand at an ever increasing rate. One of those is expenses that seem to be the most uncontrollable at times is the commercial insurance package and workers compensation.

Often times I hear “but Aaron, its work comp all the same? Don’t I pay a flat rate per $100 of payroll and I am protected against an employee injury?”

Yes and Yes. If you are a responsible employer and you have adequate coverage on your employees, you will have insurance for employee medical expenses for work related injury, employee lost wages due to work related injury, and protection against your liability as the employer for any negligence that could have contributed to the injury (up to a set limit as described in part B of your work comp policy).

I can hear you thinking: “if that’s your answer, then how can I save money on my work comp?”

Let’s dig in. Here are the big 5

  1. Safety and the Experience Modification Factor
  2. Claim Management
  3. Modified Duty Return to Work
  4. Self-Insurance & Deductibles
  5. Drug Free Workplace Credits

I recently watched an awesome video about the metrics you can use to track work comp success rates. Since I focus on business that pay under $2M in total work comp premium, I will leave out some metrics. The metrics I recommend are:

  1. Sales (Gross Revenue) to pay for a claim
  2. Cost Per Full Time Employee
  3. Lag Time
  4. Return to Work Ratio
  5. Number of employees out of work right now

In future articles I will dig into each area of savings and each metric. Be sure to check back soon for more info.

Despite the cheesy title of this article, the silica exclusion in your general liability, work comp, and umbrella polices are no something to gloss over. Take this nation-wide law firm that specializes in silicosis liablity claims:

http://www.silicosis-lawfirm.com/

Or this one that specializes in silicosis related work comp claims:

http://www.silicosis.com/

The amazing thing is that these attorneys are winning. Check this $7,000,000+ claim that was awarded in Mississippi: https://www.aboutlawsuits.com/silicosis-lawsuit-verdict-for-sandblaster-6938/

Here is a $30 Million Dollar Settlement for a miner:

http://www.reuters.com/article/us-safrica-silicosis-settlement-idUSKCN0W61L7

Here is a sheet of the top types of business that are exposed to the claims. Some big ones are countertop installers, quarry operators, masonry contractors, concrete workers, machine shops, special trade contractors, and any company who provides services to dwellings and other buildings. Some other lesser known types of business that are at risk are auto service, auto dealers, and boat dealers.

Let’s break down how profitable this niche is for them. The have built a specialty website for the injury, they have invested hundreds of thousands if not millions in advertising dollars in the search terms “silica”, “silica dust”, “Workers Compensation Silica Dust”, “Silica Dust Homeowner inhalation”, etc check it out…it’s all public information. Just google each term and tell me who shows up.

I already know what you’re thinking: But Aaron, I’m just a small business owner in a mountain town just outside of Boone North Carolina…there is no way I’ll ever get a claim like that.

I’ll tell you this, the world is filled with stories of people saying that it would never happen to them. Just know that it does. In my time servicing Western North Carolina, I’ve seen several multi-million dollar claims and I promise you that I have not seen the last.

If you would like to see what a silica dust exclusion looks like and what you can do about it, just shoot me an email. My contact info is below.

Aaron Peacock    828-434-3215

[email protected]

Today I received a call from one of my long time clients who was madder than hell about an accident his wife was involved in. An elderly woman had accidently pressed the accelerator in her 4Runner instead of the brake when pulling into a parking spot and plowed into my client’s vehicle causing $8,500 in damage. You see, Mr. Smith (not his real name) is a plumbing contractor in a small mountain town in Boone North Carolina who has worked his ass off his entire life and had just purchased this Chevy Tahoe for his wife – it was the first new vehicle she had ever owned.

Mr. Smith raised one of the recurring questions I get from insureds suffering auto damage. He asked “I understand that the woman who hit my parked car is liable for the damage. But what about the depreciation? What happens when I trade it in or try to sell it and they see the CARFAX report?”

He asked because he intuitively understood the fact that when a vehicle is damaged in an accident, the resale value will be less than a vehicle that has not been in an accident...even if the vehicle has been repaired to 100% of its previous state. In legal terms, the damage resulted in reduction or “Diminution Of Value” in the marketplace, even though repairs have been made. Insurance professionals call this a “D.O.V. Claim” and there are steps to take to ensure you get made whole.

First off, the definition of “diminished value” can be confusing. There are three types that are defined here by the partners at Matthiesen, Wickert & Lehrer in South Carolina:

Immediate Diminished Value

This is the loss in value that results immediately after an accident before any repairs are made. It is the difference in market value immediately before and after an accident caused by a negligent tortfeasor. In many states, this is the measure of damages for injury to personal property.

Inherent Diminished Value

This refers to the loss in value of a vehicle that remains after it is completely and professionally repaired. It is the loss of value that results from the simple fact that the vehicle has been in an accident. This type of diminished value is also known as “stigma damage.” Given two identical vehicles on a car lot, the one which has not been involved in an accident is preferable to the one which has been damaged and repaired.

Repair-Related Diminished Value

This refers to the additional loss in value to a vehicle which results from incomplete or poorly-performed repairs. It could include simple cosmetic damages that remain after repair or major mechanical or structural deficiencies.

You can read their full article here:

https://www.mwl-law.com/a-primer-on-diminution-in-value-claims/

Please note that inherent diminished value is the most common form used by insurance companies. There are two types of inherent diminished value claims, both of which can use the tips below:

1.First-Party Claims: These are claims made by the vehicle owner against their own insurance company 2.Third-Party Claims: These are claims made by the vehicle owner against another person for negligently causing damage to the owner’s vehicle.

Here are my 5 tips when making a diminished value claim.

5 TIPS WHEN MAKING A DIMINISHED VALUE CLAIM

1. Don’t file until the vehicle is fully repaired

Picture this: In Mrs. Smith’s haste, she files a DOV claim immediately after the accident. She already has the repair estimate of $8,500 from her local Chevy dealer and the dealer was kind enough to give her trade in values for the vehicle from before the accident and after the accident so she could reference them when discussing the claim with us, her insurance carrier. The difference from pre to post accident trade in value is $3750 after the car was repaired 100%. The insurance company representing the driver that hit Mrs. Smith’s Tahoe may very well accept that initial estimate of $3750 on the spot.

Here is the concern with that. What if the damage exceeds the estimate? What if instead of simple body damage, the frame is bent and the transmission is out of alignment? In that case the perceived damage to this vehicle in its future owner’s eyes is much worse than body repair. It’s important that you wait until you know the full extent before you file. By waiting for the final repair to be completed you can have much more confidence that you are getting a fair value for the depreciation.

2. Make sure your vehicle is repaired with OEM Parts

For new vehicles like Mr. and Mrs. Smith’s it’s important that the vehicle is repaired with parts made by the original equipment manufacturer (OEM). Often times, repair shops will try to install generic or aftermarket parts to keep the repair cost down. Many insurance companies will encourage this as it will decrease their costs in the claim.

When working with the claims adjuster, you need to keep stating that you expect your vehicle to be restored to its “pre-loss condition”. Be prepared for a lot of pushback.

3. Gather evidence of your vehicle’s the lost value

Let’s circle back to my insured’s claim. They did a good job of getting the trade in value differences (even though she should have waited until after the vehicle was repaired). Additionally I would encourage her to shop multiple dealers for trade in information while making sure to disclose the damage.

On top of dealerships, please advertise the vehicle independently and record the offers made. Craigslist, autotrader.com, cars.com, carsguru.com are the big 4.

4. Negotiate

The insurance company is out to keep their premiums low for all of the policy holders so they will always try to minimize their losses. With this in mind, you need to know that whatever they offer to you is negotiable.

Let’s play out an example. If your estimated loss in value is $3750 like my clients, you should file a claim for $6000. They will offer you $2000. You need to provide evidence (gathered from the previous step) that your car has lost much more than $2000 and you expect to be made hole for this loss. The insurance will never come up to the $6K, but they may get to the $3750 that will make you whole.

5. Be prepared to sign a release

Finally, once you come to an agreeable number, the insurance company will ask you to sign a release. This form will state that the insurance company is no longer liable for any additional losses. Before you sign this, make sure you are ok with the settlement and what it represents.

 

If this is a situation you are facing, please feel free to contact me at any time. I’d love to help in any way I can.

All the best,

Aaron Peacock

828-434-3215

704-236-5598

[email protected]

Recent Insurance Claims from Specialized Contractors

People ask me this question all the time: "yea, but really Aaron. How often does that actually happen?" Its gotten to the point that its almost comical. Here's a list my company has compiled of our most recent claims for specialized contractors. This is just from our book of business in the construction industry....from masonry and concrete guys, to grading, paving, HVAC, Plumbing, Electrical.

Take a look for yourself! The claims are outrageous:

Read more

Aaron Peacock

Aaron Peacock

Hi, I'm Aaron and I'm a marketing representative for Federated Mutual Insurance Company - a Ward's Top 50 and an A.M. BEST A+ Superior rated insurance carrier. After my wife was severely injured in an accident involving a distracted driver, I've found one of my passions in life is to help educate people about the Danger of Distracted Driving and have started speaking to businesses in Western North Carolina on implementing the Federated Insurance DriveS.A.F.E. program. Click here to read more...

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