• A Stress Test for Your Insurance Program is a Prescription to Consider
  • January 8, 2013 | Author: Collin J. Hite
  • Law Firm: Hirschler Fleischer A Professional Corporation - Richmond Office
  • Many larger companies have risk management departments.  The job of the chief risk officer is to gage potential problems to the company, manage those risks and insure against them.  Risk officers work closely with their brokers to put into place the requisite insurance program.  Smaller businesses go through a similar process, but usually assign the duties as collateral job functions.

    Brokers provide a valuable service to their clients.  They know the available coverage in the marketplace and what are the best carriers to consider.  If there is a claim they can initially file it with the carrier and assist in trying to secure coverage if there are problems.  However, if companies wish to ensure they have the best insurance coverage in place there are two additional steps to consider.  First, an insurance audit is worth undertaking by most policyholders.

    An audit is a very worthwhile function; it serves as a second opinion on the program.  In this project an coverage attorney can look at the insurance program to analyze policies to see gaps in coverage.  Generally, the business operations are considered and compared to the scope of insurance coverage.  Gaps can then be addressed with the broker to ensure they are filled if considered too large a risk.

    For the insured that really wants to know they are covered a more in-depth review is required.  A stress test on your insurance program is warranted.   In this instance a insurance audit is conducted.  Then various coverage scenarios are played out in hypothetical situations and coverage analyzes are conducted.  Just as financial institutions are judged you can internally test your insurance program.  This can be an intensive process to have coverage counsel test your program(s) against various loss scenarios, but it can be far less stressful and expensive than facing a catastrophic loss with coverage issues.

    Once a company goes through a coverage stress test the full scope of coverage concerns can be addressed.  The serious gaps in coverage can be fully addressed with the broker to work with the insurer provide coverage.  Manuscript policies or endorsement can be considered as necessary.  Then in subsequent renewal period the insured can fall back on program audits as needed.

    It is unfortunate when a policyholder learns of gaps in insurance coverage after the loss.  The costs associated with such gaps are almost always more significant after a loss when the policyholder must cover it or litigate the coverage question.  Audits and stress tests can help ensure the owner is not left on the hook in such scenarios.