How much can your client afford to lose?
Consider the example of a banquet hall filled to capacity when a fire breaks out, destroying the building and resulting in the injury or death of patrons. The owner’s General Liability Coverage has limits of $1 million per occurrence and $2 million aggregate; however, during the investigation it is determined that the banquet hall had numerous fire code violations and a verdict of $5 million is awarded to the claimants.
In situations such as these, a business not protected by Excess or Umbrella Coverage would potentially face financial ruin on top of an already tragic incident. While Excess or Umbrella policies do not replace primary General Liability Coverage, they do supplement its protection by offering additional limits that exceed those of the primary policy.
Michael Vought, Managing Director of Markel Corp. in Red Bank, N.J., warns, “Almost any business, regardless of their operations, has an exposure to significant losses. Umbrella or Excess Coverage is a product every business should purchase. Every business needs to protect their assets from a liability standpoint. Not doing so can lead to disaster.”
Though similar in nature, Excess and Umbrella policies serve two distinctive functions for a business owner. Umbrella policies usually offer broader coverage than Excess policies and provide coverages over several underlying policies such as General Liability, Business Auto, Liquor Liability, and Employers Liability. They also feature a self-insured retention, which acts similarly to a deductible but only applies to uncovered primary losses before the umbrella starts paying. For example, when a General Liability policy for a shopping center does not cover an assault and battery loss, the self-insured retention is applied and then the Umbrella policy responds, unless it excluded assault and battery. It also pays for defense costs in addition to policy limits.
On the other hand, Excess Coverage acts as an extension of the underlying policy and provides increased limits once that policy has been exhausted. It serves as added protection only for items covered by the primary policy, “following the form” of that policy, so to speak. If the underlying policy does not provide coverage, neither does the Excess policy. It strictly tracks the coverage provisions of the primary policy when providing additional limits but does not include a self-insured retention.
Cornering the Market
Subtle differences between the policies can be confusing to even the most seasoned insurance agent or broker. As Tom Ryder, Director of Excess Casualty at Burns & Wilcox explains, “I was a retail agent for 25 years and know that Excess and Umbrella Coverage can be confusing. Some agents don’t broach the subject with their insured because they are unsure of the answers to their questions. And that’s what we are here for: to educate and to inform.”
There are obvious challenges associated with marketing a product often misunderstood by retail agents, but with complexity comes opportunity. Though some agents remain reluctant to invest the time and effort needed to converse fluently with commercial clients and prospects about excess casualty products, those who have committed to doing so are positioning themselves to tap into a potentially lucrative segment of the market.
“We’ve definitely been growing,” says Tom Ryder. “Last year, we wrote 4,800 Excess and Umbrella policies. I think agents are recognizing that we have good products and excellent service.” In fact, in the last five years, Burns & Wilcox has written more than $100 million in Commercial Excess Casualty business — a sweet spot in an otherwise uneven market.
In response to shifting marketplace demand, Markel in partnership with Burns & Wilcox, has expanded its Excess Casualty product line and strengthened its marketing outreach to insurance agents. With Markel, Burns & Wilcox can now underwrite Umbrella and Excess limits up to $10 million, instead of the previous $5 million ceiling. Additionally, through this program, the range of eligible business classes and types of risks has been significantly diversified. Finally, to secure business in this burgeoning market, the revenue threshold of qualifying insureds has been increased to $250 million.
Is This Umbrella Right for Me?
While most businesses do not generate anywhere near $250 million in revenue, Dan McQuillen, a Senior Underwriter at Burns & Wilcox who specializes in Excess and Umbrella Coverage, describes why these policies benefit small businesses as well: “There are high-risk companies, obviously. A manufacturer of brake pads for the automotive industry has higher potential exposure than the ‘mom and pop’ restaurant down the street,” he says. “But that restaurant, unless they buy the higher level insurance, are only covered at $1 million per occurrence. What if there is a slip-and-fall, food poisoning, a fire? To protect against asset depletion from unforeseen risk — that’s why we issue these policies.”
“Though large firms are the obvious candidates for this type of coverage due to the extensive risks associated with their businesses, excess protection resonates with commercial enterprises of all sizes in an increasingly litigious society,” says Marla Donovan, Office of Product Development, Burns & Wilcox Corporate Headquarters.
As Tom Ryder points out, smaller firms may have a greater need for Excess and Umbrella Coverage than larger companies. For example, he says, “In the month of June there could be a slip-and-fall, and in September, another one. A small business is even less likely to be able to absorb the cost of litigation as opposed to a big business. I can’t say it enough: this is a conversation every agent should have with their insured commercial clients, no matter the size.”
Ryder’s best advice for insurance agents? Bring up the subject of Umbrella or Excess Coverage each time they talk to people about purchasing a new policy or renewing an existing one. Visit the topic on an annual basis; review exposures with the client and have a clear understanding of how the business has changed from year to year. Have sales increased? Payroll? Locations? “The exposure to small or large business multiplies as does the payroll, as do the sales,” he says. “The successful entrepreneur or successful company has to pay attention to the coverage they’ve gotten. Is it adequate?”
Finally, he says, ask the business owner to do a self-inventory; how much can I afford to lose?
“The decision has to be made by the business owner. If you ask me what percentage of businesses should have it, I’d say 100 percent. Realistically, it doesn’t work like that. A gas station owner on the corner may look at Excess Coverage as an ‘over and above’ or surplus insurance he doesn’t need. A luxury, in other words. It’s not designed to be a luxury but to protect the assets of your business,” Ryder says. “So it boils down to that question: ‘Do I have enough insurance coverage to protect the assets of my business?’ Your success could well depend on the answer to that question.”