How to Choose the Right Broker

There aren’t a shortage of insurance brokers in this country; over 36,000 independent agencies to be precise. With all of those options it can be a daunting task to determine who to trust with managing your company’s insurance and risk management. Non-renewals, rate hikes, denied claims are all consequences of choosing incorrectly. Here are a few considerations:

Do they have expertise in your industry?

Insurance policies are a promise and your broker’s job is to make sure that promise is crafted in a way that serves your best interest. More importantly, when it is time to cash in on that promise, they need to ensure that it is fulfilled completely and fairly. A broker with expertise in your industry knows the right coverages to include, the wrong ones that you don’t need, and how to solve the claims issues that are likely to arise. For example, I met with a flooring company who was paying about 10% of their annual premium on Product Recall insurance but due to the way the coverage was written and how the flooring industry operates; they would never be able to collect under that coverage and were wasting 10% a year.

Do they understand your company?

Perhaps more important than understanding your industry at large; your broker needs to deeply understand your company. Are they familiar with your operations, your strategy, your culture, and your mission? In order to be effective as your representative to the marketplace, your broker needs to be deeply knowledgeable about all aspects of your business. The party with access to more information wins any negotiation and when your broker is knowledgeable about your company then you can be confident that they are successfully negotiating on your behalf.

Do they provide concrete answers?

Admittedly, there can be a lot of gray area when deciphering insurance coverage and many brokers smartly tread with caution when discussing hypothetical claim scenarios. However there is a difference between navigating the nuance and giving a non-answer. Insurance coverage has existed here since before we were a country and much of the gray area has been litigated and adjudicated on in the past 250 years. You want a broker who leans on their in-depth understanding of the policy, as well as any relevant case law to provide you with actionable answers to your questions. A broker who is able to do that can also successfully advocate on your behalf when that hypothetical becomes a reality. For example, one of our insureds had a claim denied under the Product Recall exclusion in their General Liability policy. Because we’ve researched these hypotheticals, we were able to successfully argue that coverage exists by pointing to prior litigation around a similar scenario and got the carrier to cover the claim.

Do they have the proper infrastructure to service your account?

I am always surprised by how many prospects ask about our ability to issue Certificates of Insurance. Certificates of Insurance are a snapshot of your company’s insurance policies and take less than 5 minutes to produce but even so many clients have shared how they were a source of frustration with their old broker. When deciding on a broker find out what their process for issuing COIs is and if that fits with how your organization operates. Does a dedicated rep handle them? Do the requests go to a general mailbox? Do you issue them yourself through an online portal? Besides COIs it is important to find out who the service team is and their workload. Will your account be serviced by a back office team elsewhere or will there be a dedicated account manager? Will your business be another number or a valued client? These are important questions to help you understand the service level that you will be receiving.

Self Driving Cars May Save Auto Insurance

By now, you’ve probably heard some of the hype surrounding self-driving cars; from Elon Musk’s vision of the future to the numerous concerns from lawmakers. The autonomous car will drive down the costs of transportation as we will no longer need people behind the wheel of taxis, Ubers, or buses. The technology will also eliminate the need for parking garages since drivers can send their cars home when not in use. While that seems like a distant vision; carmakers are surprisingly close to bringing autonomous cars to market, and for business owners and insurers alike, they couldn’t come sooner.

If your business has any sort of fleet of autos you are probably keenly aware of the insurance industry’s ongoing struggle with commercial auto insurance. Insurance companies have been consistently raising auto rates across their commercial books and businesses, especially in the transportation industry, have felt the effects.

There are several factors as to why the commercial auto insurance industry has been performing so poorly, but one stands out: the drivers. You can point to more miles being driven, rising costs of litigation, even how the more advanced technology used in cars increases the costs of repairs but all of those would be moot if we had a population of perfect drivers who never got in accidents. Like a ship’s Captain, the driver bears the ultimate responsibility of the car and is thus responsible for the auto insurance woes.

Theoretically, self-driving cars should be safer than those manned by human drivers for obvious reasons. Computers don’t get tired, lose focus, drink or get road rage; however, we all know that technology doesn’t always work in practice as it should in theory. We’ve already seen the first fatal accident involving a self-driving car. Plus, the autonomous cars will no doubt be sharing the road with other human drivers, adding a layer of unpredictability.

Insurance is fundamentally grounded in statistics. Insurers compile a tremendous amount of data on their policy holders, and use that data to infer the probability other policyholders will get in an accident, and how much it will cost. That is at the core of how rates are determined; past data dictates that a driver of a certain age, driving a specific make and model of a car in a given region has X probability of being in an accident. It’s complex, confusing, and imperfect, so insurers are constantly reviewing their data and tweaking algorithms in order to operate at a profit. This is still the case with nearly one hundred years and hundreds of millions of drivers worth of data.

By virtue of their business model, insurers can’t rely on anecdotal evidence that self-driving cars are safer; they’ll need lots of hard data. Without credible information on how self-driving cars act on the road, insurers will likely have one of two initial reactions. 

The first option for insurers is to decline to offer coverage of autonomous cars, either by declining applicants with those types of vehicles, or adding wording to their auto policy specifically excluding coverage while the autonomous function is on. Currently, the auto policy has language specific to who is driving the car for coverage to be in force. It will be interesting to see how the courts interpret it in regards to autonomous driving. In case of an accident, is the person behind the wheel technically driving, or was the computer the legal driver? Insurance carriers may argue that if full control is given to the computer, their customer wasn’t the one driving. The policyholders, on the other hand, would argue the opposite in what could be an important precedent-setting lawsuit once it happens. Courts typically side with the insured in matters of policy interpretation but there’s no way to predict what the legal decision will be right now. In order to avoid costly legal battles, insurers will use specific policy wording to very clearly state their intention to not cover accidents while autonomous function is on.

Alternately, some insurers may respond to the risks associated with this new technology by raising rates. In the absence of the volume of data they need for ratemaking algorithms, insurers will initially err on the side of caution and estimate higher accident probabilities. Over time, if autonomous cars truly are safer, insurers should lower their rates commensurately. The originally skeptical insurers may then join the market after compiling credible data on the safe operation of autonomous cars, thus further lowering rates.

Either way, the most dangerous part of a car (the driver) is essentially removed from the equation and six-figure auto liability claims may become a thing of the past. My prediction is that the failure of autonomous technology will be treated as a manufacturer’s defect, much like if the brakes failed, and claims will shift from the driver’s auto policy to the car-makers Product Liability policy. This reduction in Auto claim payouts will result in rates stabilizing and Auto Policies once again becoming profitable for insurers and affordable for insureds.   

Hidden Exposure to Intellectual Property Litigation

In today’s rapidly changing, 'disruption' economy it can be tough to discern whether you are infringing on another’s intellectual property as processes are constantly improving and changing. Finding out the hard way can be a costly mistake. According to the American Intellectual Property Law Association, intellectual property lawsuits cost an average of $4.4 million between defense costs and potential damages. This is problematic as, chances are, every company uses intellectual property at some point in their operations or supply chain and may not even realize it. It should then be alarming that coverage for intellectual property infringement is specifically excluded in the Personal and Advertising Injury part of the Commercial General Liability Policy. Companies are then left with a severe, uninsured exposure that they may not even know they have.

Intellectual Property refers to “creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names, and images used in commerce.” Its broad definition can create confusion

When developing your intellectual property, it’s important to make sure you’re not inadvertently infringing on another’s IP. In many cases, considerable time and resources may be spent only to find out that another company is claiming your work infringes on their IP. The vetting process is further complicated by the rise of non-practicing entities (NPE’s), or what are referred to as “patent trolls.” NPE’s are companies that hold various patents but don’t produce any products or services. They exist by threatening lawsuits to companies that may be infringing on their patents and offer settlements just below the cost of defense. For defending companies, it is markedly cheaper to settle than to hire an attorney and fight in court, thus perpetuating NPE’s ability to acquire more patents and attack other companies.

On the flip side, you invested a lot of time, hard work, and energy into developing your intellectual property and you can’t afford to let another company come along and infringe upon it. However, you also can’t quite afford the $4.4 million price tag that an intellectual property suit brings. The moral hazard is evident; theoretically, a company with larger assets could infringe on a smaller company’s IP; knowing that the smaller entity does not have the resources to enter into litigation.

Often overlooked is the intellectual property your business relies on from vendors and suppliers. A common example is any sort of software that your company licenses. A less common example is a part your company buys from a supplier that is used in your finished product. That supplier may have a patent on either the machinery or the process used to make that part. If they lose that patent in an IP suit you may have to find a more expensive supplier. Finding a new supplier isn’t as easy as picking up the yellow pages. There are search costs, negotiations, product differences, and logistical concerns that can place an undue burden on an organization that has to unexpectedly switch.

Addressing your intellectual property exposure should be part of your enterprise wide risk management program. You should take an internal audit of your software licenses, suppliers, and your own intellectual property; determine your reliance on them and develop the appropriate risk management measures to address those exposures.

As part of your risk management program, you may consider purchasing insurance. The most common is Defense Coverage, which simply covers your defense costs and potential damages you may owe.  Several carriers are also offering Enforcement Coverage that pays your legal costs of suing others who infringe on your IP. In addition, there is coverage available for your reliance on another company’s intellectual property. Some of these policies also offer coverage for your indirect costs of losing an IP suit - like your loss of income or costs associated with creating new IP.

Addressing IP exposures, and the applicable insurance, is very complex and requires a thorough review and understanding of the coverage provided by certain policies as well as a knowledgeable broker to guide you through the process.