Insurance

Business Interruption Insurance and the Pandemic

by

In a number of states, legislation has been proposed to compel insurance companies to pay business interruption losses. Before I discuss the 2 biggest issues related to this pending legislation, let me recap exactly what business interruption insurance is.

Business interruption (BI) coverage is a form of indirect PROPERTY insurance. This mean’s a covered peril in a property policy must cause a loss, and that insured loss must, in turn, trigger the business to shut down operations.

For example, if a business’ building were destroyed by an arsonist, the covered peril of fire caused the property loss. The business’ BI coverage will be triggered. However, if a flood destroyed the business’ building and shut down operations, the peril of flood is an excluded peril and neither the flood damage nor the ensuing business interruption would be covered by the policy.

Although many people, including state governments and politicians, are calling for insurance companies to honor the business interruption losses of ALL businesses that were shut down as a result of COVID-19 orders, I don’t see that actually happening.

Here’s why.

First, coronavirus–or any virus, for that matter, is NOT a covered peril in any insurance policy I ever read. Even more importantly, most insurance policies contain specific exclusions for the perils of “virus” and “pollutant,” both of which would apply.

Furthermore, the shutdown of operations to any business due to COVID-19 is not a result of property damage. It is the result of a civil authority making an order. And yes, although business interruption insurance does provide limited coverage for Civil Authority, that policy provision requires the civil authority to evacuate an area, or prevent access to it, because of a peril that is covered by the business’ policy.

Back to the 2 big concerns I promised to discuss.

First, when insurance companies file their premium rates with the states–as required by state law–those rates are approved by the states. The entire concept of risk pooling, which is the foundation of the insurance industry, is violated if an insurer MUST pay for every single loss experienced by every single policyholder in a particular year. Essentially, it would bankrupt an entire segment of the insurance industry.

Next, the insurance policy is a legal contract. Contracts are regulated and enforced by the federal and state governments. However, the only parties to an insurance contract are the insurer and the insured–not the government. Under federal law no one can force the parties to a contract to amend its terms and conditions. I’m not a lawyer, and I’m not giving legal advice, but based on the talk I’m hearing from lawyers, it’s unlikely any state government will prevail in court if it attempts to constrain insurers to pay all business interruption claims they receive.

This is the short version of the story about how the pandemic is affecting the current insurance marketplace and, specifically, business interruption insurance. For the long version, listen to Episode 5 of my podcast, Business Interruption Insurance in a Pandemic.

Cannabis in the Insurance Industry

by

Because the federal government classifies marijuana under Schedule I of the Controlled Substances Act, its cultivation, possession, use, and distribution is illegal under federal law. Not all the states agree with the federal government.

11 states have legalized the recreational use of marijuana, 35 states have legalized medical marijuana programs, and many of the remaining states are considering doing one or both.

One of the biggest problems faced by those working in the cannabis industry–and insurance companies and agents working with those businesses–relates to money. Because cannabis businesses are considered illegal operations by the federal government, federally regulated banks won’t do business with them. A number of federal laws–including RICO and money laundering statutes–impose reporting restrictions and penalties on banks who don’t comply. Because these banks are concerned about repercussions by the federal government, they won’t open accounts for anyone in the cannabis industry.

Some local and county banks have been working with cannabis business in states that have legalized marijuana but the majority of these business deal strictly in cash, and face many challenges because they have a great deal of cash on hand. When a cannabis business can obtain insurance, the carrier will require specific and strict conditions to be met in connection with security … because of the crime exposure. Criminals targeting cannabis businesses are far more interested in finding cash than they are pot plants.

For more information about this topic, listen to today’s podcast, or check out any of the following resources:

May Webinar Dates

by

My May schedule of webinars for A.D. Banker is now available:

  • May 05 | 11:30 a.m. | Driving into the Future: Uber, Drones, and Driverless Cars
  • May 11 | 11:30 a.m. | Emerging Technologies & Market
  • May 14 | 8:30 a.m. | Anti-Money Laundering 1-hour Refresher
  • May 19 | 11:30 a.m. | Ethics in Action
  • May 28 | 8:30 a.m. | Anti-Money Laundering

For more information, or to register, click here.

The Person Who Mentions Price First Loses Control of the Negotiation

by

I’ve always had a problem with buying or selling anything based solely, or primarily, on price. You want to know why? Because each of us places a different value on every product or service.

Note: For a more detailed version of this blog post, listen to Podcast Episode 1 (4/21/2020).

To be an effective and successful salesperson, you need to know how your clients and prospects value whatever it is they’re buying. Why are they buying it–because they have to, or because they want to? How well do they understand it–both in terms of what it does, and what it doesn’t do? What are their expectations–not only about the product they’re buying, but about how you’ll be providing service?

Tossing a dollar amount at someone means nothing in the absence of context.

Over the years, I came up with a really good way to gauge how people valued their insurance. I started with a story, then offered my absolute best, top-of-the line, super-duper insurance policy. It didn’t matter what type of insurance I was talking about.

If you use the same concept, it won’t matter what type of product or service you sell, either.

The most important thing is to tell a story about an individual (not your client or prospect) with the same product or service your client is thinking about buying. Illustrate the negative consequences that might result if the individual didn’t buy the RIGHT product or service, or the right options and features.

An insurance salesperson would provide a scenario involving a claim, such as an auto accident, a house fire, or an explosion in a manufacturing plant. A car salesperson might provide a scenario involving a car breaking down, or a truck that didn’t have all the features a buyer might need.

Then, after this unnamed individual (who is NOT your client) experiences the horrible scenario, you ask your client what he or she would want their product or service to perform if they WERE the individual starring in your story.

When your clients answer that question, they tell you how they value the products or services they’re buying.

When I was actively selling insurance, I’d quote the most comprehensive insurance policy with the highest limits of coverage. Yes, my clients were shocked when they asked the price and I told them what it was. But I’d explain:

This  is the most comprehensive, top-of-the line insurance policy I can sell you. I certainly don’t want to offer you anything subpar. When I prepared the quote, I had no idea about what you wanted your insurance policy to do for you, or what YOU think is the best type of policy. Now that I do, all we need to discuss is what you DON’T want your policy to do and, together, we can design YOUR version of the “best” policy.

At this point in the negotiation, all I had to do was discuss the available policy features and options, and which ones the client/prospect felt were important and unimportant. Same thing with the amounts of coverage. Then, when we did start talking price, clients had a much better idea about what they were buying, what VALUE they placed on the product, and to what extent they were willing to pay out of their own pockets in the event of a claim.

When you mention price before your clients do, you’re handing them control of the conversation … and the interview. They choose the story they want to tell and, I guarantee you, they’re going to skip over the confusing chapters and get right to the one about “Price.” They’ll also skip the words they can’t pronounce, all the small print, and all the stuff that YOU know and they don’t. The framework of what gets discussed, and why, will be much narrower in scope than if you, the person with the knowledge and expertise about the product, tell the story

Clients seek the advice and services of insurance professionals because we have a whole lot more technical and hands-on experience about the subject of insurance than they do. If they think they can handle the purchase all by themselves, they buy online. So, when a client seeks you out, all you have to do is be a little creative to showcase that knowledge … and to provide the framework to ask them what they want, and tell them the whole story.

 

Say Goodbye to the Tax Penalty for Not Having Health Insurance

by

You can view this content on YouTube, or listen to it on my Podcast.

The Affordable Care Act, also known as the ACA and Obamacare, included a provision that taxed most Americans who didn’t buy and keep in place a specific type of health insurance. The reasoning behind the tax was the expectation that if EVERYONE were insured, rates would go down.

Not everyone agreed with this perspective and litigation was filed against the federal government. The Supreme Court ruling a few years later declared the Individual Mandate, the provision requiring the tax, constitutional because Congress has the power to impose taxes on Americans.

Unfortunately, everyone didn’t buy insurance after the ACA and its tax penalty became law, and the rates didn’t go down, either. In fact, in many cases they went up. And kept going up. The ACA was revised in 2017 and the tax penalty was reduced to zero effective 2019.

This was good news to all the people who chose not to buy insurance, but opponents of the ACA filed more litigation to have the entire law declared unconstitutional. The end result of that legislation brought about a ruling by the Fifth Circuit Court of Appeals last December. The Court ruled that if the Individual Mandate no longer contained a tax, it was unconstitutional. Essentially, if a tax is $0, it can’t be billed, collected, or enforced–so it isn’t real. Sort of like the tree falling in the woods and no one hearing it.

Anyway, what this means is that your clients who didn’t have health insurance last year, won’t be paying a tax penalty when they file they federal income tax returns ins April. However, if they live in one of the six U.S. jurisdictions that has its own Individual Mandate at the state level, they might still be taxed on their state returns if they didn’t have state-mandated coverage. Those 6 jurisdicitons are California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont.

Right now, opponents of the ACA who want the entire law declared unconstitutional are in the process of reviewing all the ACA’s provisions before bringing their case back to the District Court. It’s expected that the District Court will take some time considering and will eventually strike that down.