Sunday, January 9, 2011
Brown & Brown Letter Continued
A very good question was posted by Mr. Lanny Howe regarding part of our letter handed out at the delegate meeting. Being that we wanted to provide a very thorough response, I thought it best to make a new post rather than try to fit a short response to the original question.
Thank you for taking the time to read our letter summarizing the process and some of the issues of note regarding the Insurance Renewal for the Associations in Century Village West Palm Beach. This letter was an outline of countless hours of research, review, and discussion that transpired between September and December 31 of 2010 between the Insurance Committee, UCO officers, and a number of Insurance Agencies.
As you know, insurance policies are legally binding contracts used to transfer risk of financial loss between entities. As most legal contracts, they can be cumbersome to sort through and contain a significant amount of legal terminology. There were several contracts negotiated and purchased for the Century Village Associations. The one specifically discussed in our letter was the Insurance Policy procured by Plastridge from an Insurance Intermediary known as AmRisc. This entity is an underwriting manager, authorized to issue coverage terms and pricing through a number of Insurance Companies. In this case last year, AmRisc underwrote the Wind Deductible Buy Down coverage through Lloyd's of London, QBE Specialty Insurance Company, and Steadfast Insurance Company to provide a reduction in Wind Deductible for ALL Associations in Century Village in West Palm Beach under one Insurance Contract.
As in most Insurance policies, coverage terms, insurance premium, taxes, fees, coverage limit, and deductible is reflected in the first few pages. The cost of this AmRisc policy was $978,299.89 including taxes and applicable fees. Quite notably, we were shown the actual Insurance Policies distributed to some of the Associations last year where the Premium and Tax information had been deleted. This in itself was VERY peculiar.
This specific Insurance Policy procured by Plastridge was a 50 page document in whole. The purpose of the policy seemed to be to further reduce the Per Building deductible for ALL BUILDINGS against losses from Named Storms, from 2% of a specific building's value to 0.5% of the building's value. Pages 4 and 5 of this Policy are labeled "Endorsement 1" which disclose some of the coverage and deductible details. "Item 7.B." specifically addresses the coverage provided from the Insurance Companies and the wording is very specific. It states that the coverage limit will be the amount between 2% of the building and 0.5% of the value of the building, "SUBJECT TO A $1,000,000 PER OCCURRENCE MINIMUM AS PER SCHEDULED". This means, the $1,000,000 minimum deductible applies to all buildings that are listed on that schedule. But you see, this is very different from saying any one building is ONLY subject to a Wind Deductible equal to 0.5% of the replacement cost of that specific building. The minimum deductible clause states this is not the case, UNTIL AFTER MANY buildings have been damaged at the same time, so that all the damaged Associations have paid a total of at least $1,000,000 in combined deductibles. If only a handful of buildings were damaged and the combined minimum deductible requirement was not met, then the deductible for that building might have still been 2% even though the Association paid for part of the premium of this policy hoping to reduce their deductible to 0.5%.
To reiterate our point, it's important to note that this policy is based on a "PER BUILDING DEDUCTIBLE". That means, only the damaged buildings would be subject to the minimum deductible calculation. Of course, in this case with the high minimum deductible, MANY buildings would have to be damaged FROM THE SAME STORM, so that their deductibles can be applied towards this $1,000,000 minimum.
It is common to have minimum deductibles on Insurance Policies; especially those providing coverage against loss from Wind Damage. However; a minimum deductible of $1,000,000 for the Associations in Century Village was very concerning in our professional opinion. The fact is, not that many buildings may be affected from the SAME WIND STORM considering all the roof updates that have been completed in CV WPB. So, ideally you would want a MUCH LOWER MINIMUM DEDUCTIBLE considering the HIGH COST of this specific policy. That's why the policy proposed by Brown & Brown at LESS THAN HALF of the premium of the Plastridge policy contains a minimum deductible clause equaling 1/10th of the expired policy. That minimum would effectively be satisfied with damage to less than 6 average buildings after a Named Storm, as opposed to requiring damage to some 60 buildings at the same time.
For the record, we have refrained from suggesting any specific reason why the insurance coverage was placed the way it was, and why it cost so much more both last year, or even from the renewal proposal submitted by Plastridge to UCO Insurance Committee at the time when all proposals were presented from all Agents. The Delegates and the Association Officers consist of truly engaged and caring individuals who will undoubtedly ask the questions to the parties they feel are responsible and obtain their own answers. We are not suggesting impropriety on the part of any past providers/advisors of this coverage; that is up to the judgement of individuals. We're only stating the fact that much better coverage terms and premiums have been available along the way which had not been provided to the Associations in prior years.
We believe our explanation of coverage detail is one of the reasons why the Insurance Committee consisting of 15 Members voted UNANIMOUSLY for Brown & Brown among three proposals, and why more than 240 Associations in CV WPB from a total of 309 have chosen to have us represent their insurable interests. There are very specific and various clauses in every Insurance Policy and our Agency has consistently and proactively provided definition and explanation of these terms to the Insurance Committee and the Associations. Unlike some other Insurance Agents, we chose not to circumnavigate around the Insurance Committee and we followed the formal review and approval process. Especially considering that this Committee of volunteers consisted of some of the most competent retired insurance professionals, with the goal of ensuring proper coverage be provided at the fairest price.
We are hoping to become regular contributors to the UCO Reporter with the supervision of the Insurance Committee and the UCO Officers. The goal for our contribution will not be to "sell insurance," but to "educate" policy holders about all the nuances that are contained in the Insurance Contracts as well as Loss Prevention ideas. We will also hold seminars on a monthly basis to discuss specific insurance policies and Loss Exposures on a monthly basis with interested Delegates and other Association Directors. In the meantime, we are always available to answer your questions through the Blog as well as via phone and e-mail.
Executive Vice President
Brown & Brown of FL, Inc.