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InsurOp-Ed: From 2.0 to 3

Agency Checklists Op-Ed on New Berkshire Hathaways Small Commercial Policy THREE


“[A]n insured shouldn’t need to seek the advice of an extended line of case regulation or regulation evaluate articles and treatises to find out the protection she or he is buying beneath an insurance coverage coverage.” – Kovach v. Zurich Am. Ins. Co., 587 F.3d 323 (sixth Cir. 2009)

Ah, if solely that was potential. Or is it…


The previous was the introduction to an article I wrote in Might 2018 referred to as “Reverse Engineering: Making Lemons From Lemonade.” The article was about insurtech upstart Lemonade’s try and simplify a householders renters coverage by introducing an open-source product they referred to as Coverage 2.zero.

In that article, I enumerated quite a few wacky options in that proposed renters coverage (e.g., it covers your “stuff,” a time period not outlined within the coverage) and illustrated how the coverage, because it stood on the time, seemed to be dramatically inferior to the “ISO normal” varieties being utilized by Lemonade at the moment.

I’ve blogged extensively, together with LinkedIn Pulse articles, about insurtechs and the mistaken perception that they’re “disrupting” the insurance coverage business. For probably the most half, I’ve attributed a lot of the typically weird (and sometimes harmful) issues they do to the premise that they only don’t “get it.” They actually don’t perceive that the mission of the business shouldn’t be quick/straightforward/low cost comfort however slightly aiding people, households and organizations in minimizing their publicity to critical or catastrophic monetary loss.

Sadly, that is all too typically true of our personal established establishments. An instance is the pervasive notion that insurance coverage, particularly private strains, is essentially a commodity. As an business, by way of our incessant price-focused promoting, we have now conditioned shoppers into believing this commodity fantasy. Even worse, we’ve apparently satisfied ourselves of the identical factor, as illustrated by this quote from business icon Warren Buffett:

“Insurers have usually earned poor returns for a single purpose: They promote a commodity-like product. Coverage varieties are normal….”

One would assume that Mr. Buffett would know higher, however apparently his information and experience don’t prolong to the coverage degree. That’s additional evidenced by the current announcement of a brand new Berkshire Hathaway small enterprise insurance coverage product that he refers to as “THREE.” This merchandise purports to offer property, enterprise revenue, basic legal responsibility, skilled legal responsibility, D&O, cyber, auto, and staff compensation protection in a coverage type that’s…get this…JUST Three PAGES lengthy.

New small business insurance policy THREE from Berkshire Hathaway

Right here is our article that Mr. Wilson was variety sufficient to hyperlink to…

I first examine this within the every day Coverager publication then got here throughout a extra detailed rationalization right here:

Berkshire Hathaway’s New “THREE” Web page Coverage Goals To Revolutionize Small Enterprise Insurance coverage

There’s a hyperlink within the article that takes you to the proposed Three-page coverage. I’ve solely had time for a cursory look, however listed here are some preliminary unstructured observations and questions:

  • Is that this truly a authorized contract? There’s not one of the language present in conventional insurance coverage insurance policies that establishes supply, acceptance, and consideration.
  • There isn’t a point out of protection territories for property, legal responsibility, or autos, so what regulation(s) apply to legal responsibility, courtroom jurisdiction, and so on. For instance, presumably there’s worldwide protection for using autos, which could not be that essential as a result of…
  • It seems that there isn’t any protection for the employed/nonowned auto publicity (together with rental automobiles and momentary substitutes), solely listed automobiles presumably equal to ISO Image 7 protection.
  • There’s additionally no point out of auto coverages like un(der)insured motorists and no-fault legal guidelines. If an insured is interested in what’s and isn’t coated, I suppose they’re anticipated to acquire a replica of governing state legal guidelines and decipher them?
  • Property protection seems to increase solely to property owned or leased by the enterprise, with not one of the Further Coverages/Protection Extensions offered by ISO commonplace types, together with protection for injury to the property of others. Or is injury to such property coated by the legal responsibility portion of the coverage because it has only a few listed exclusions comparable to these associated to care, custody or management (see under).
  • Non-building buildings seem to return inside the restrict for enterprise private property, not the constructing(s) restrict. Might this create potential gaps for insureds who’re landlords or tenants solely?
  • Property protection seems to be on an open perils foundation with categorical protection for theft. In contrast to most conventional property varieties, there doesn’t look like an exclusion for theft by enterprise companions, staff, and so forth.
  • Protection is for “bodily injury” to property. Since there’s an obtuse reference to cyber protection, does such protection prolong to lack of knowledge and knowledge that isn’t “bodily injury” because it’s not bodily property?
  • Is there particles removing protection because the coverage solely references protection for “bodily injury” to property?
  • I see no exclusions or limitations for injury resulting from flooding, earthquake, warfare, terrorism, widespread off-premises energy failure, emptiness, freezing of plumbing or sprinklers in an unheated constructing, and the listing goes on. Neither is there any anti-concurrent causation wording.
  • There isn’t a obvious limitation for insurable curiosity…for those who “personal” it or presumably any a part of it, it’s coated.
  • There are not any appraisal or arbitration clauses such that declare decision is restricted solely to the insurer’s discretion.
  • Property could also be changed with that of “comparable capabilities,” no matter meaning.
  • The one insureds look like the enterprise and “listed Further Insured or staff.” Hopefully, that is all staff and never simply these “listed.” In different phrases, let’s hope “llsted” refers on to Further Insured, which means that there isn’t a choice for automated AI protection. This restricted insureds provision seems to preclude protection for volunteers, permissive auto drivers, spouses of partnerships, and vicarious legal responsibility insured standing for using autos.
  • I see no exclusions or limitations for defective workmanship nor any of the ISO CGL property injury exclusions, employers legal responsibility, injury to property in an insured’s care, custody or management, liquor legal responsibility, plane/watercraft, product recall, and the record goes on.
  • There additionally seems to be no restrictions on autos used off public roads or when racing. If that’s correct, somebody might take up inventory automotive racing and be coated, whereas ISO’s CGL coverage has an exclusion for that.
  • The air pollution exclusion seems to be virtually absolute, whereas the ISO CGL coverage usually supplies protection for many air pollution incidents that happen off premises if the pollutant doesn’t belong to the insured. ISO property insurance policies additionally embrace some quantity of pollutant cleanup protection.
  • Since no point out of “bodily damage” or “property injury” is made (simply reference to an insured’s authorized legal responsibility), does the coverage cowl issues like discrimination, fines, penalties, and so forth.? Does it cowl felony legal responsibility? EPLI protection?
  • I see no automated protection, even for legal responsibility, for acquired autos till they’re listed and presumably the service can refuse so as to add any auto they select.
  • There isn’t any point out of lack of use or transportation bills protection.
  • The place’s the medical funds protection?
  • The place’s the Different Insurance coverage clause?
  • The cyber protection doesn’t seem to preclude protection for knowledge breaches or hacks by insureds. There isn’t a point out of protection for the loss or reconstruction of knowledge and knowledge.
  • Staff compensation protection is ruled by state legal guidelines. The place is the employers legal responsibility protection?
  • There seems to be no common legal responsibility Separation of Insureds clause. The truth is, there’s a particular exclusion for insured vs. insured (cross legal responsibility) claims involving the enterprise and Further Insureds, a situation that in all probability places most contractors in breach of contract, which raises one other query….
  • How is contractual legal responsibility dealt with? There seems to be an absolute exclusion for contractual legal responsibility with none carve-out of specific protection for “insured contracts” sometimes present in different insurance policies for leases, easements, assumption of tort legal responsibility, and so on. For a lot of insureds with such contracts, this places them in breach of contract.
  • There isn’t a protection for property broken throughout unlawful transportation. Does that embrace an accident involving rushing?
  • The coverage doesn’t cowl any occurrences that begin “or happen” outdoors the coverage interval. Does that imply, for instance, that a hearth that begins through the coverage interval and continues after expiration won’t be paid in full?
  • No endorsements of any variety? No Protecting Safeguards necessities? UM? And so forth., and so on., and so on.

I’ve to confess, once I noticed this text and perused the coverage, I instantly thought concerning the date, positive that it needed to be April 1.

I can solely think about who sees this coverage as an development for the business. First can be enterprise house owners who Mr. Buffett says don’t “…have the time to truly learn by way of the coverage types which might be supposed to guard them….” He goes on to say that “…a small enterprise may be assured within the safety it’s getting, as a result of the entire coverage may be learn in a number of moments.” I think that the one assured events concerned are policyholder attorneys and professional witnesses whose futures are assured by the litigation nearly assured by this coverage.

Let’s see how regulators view this within the coming months and whether or not Three pages of “coverage” types turn out to be 300 pages of processing and explanatory paperwork.

Extra about Invoice Wilson…

Agency Checklists, MA Insurance News, Mass. Insurance News, Bill Wilson, Insurance CommentaryWilliam C. Wilson, Jr., CPCU, ARM, AIM, AAM is the founding father of InsuranceCommentary.com. He retired from the Unbiased Insurance coverage Brokers & Brokers of America in December 2016 the place he served as Assoc. VP of Schooling and Analysis and was the founder and director of the Huge “I” Digital College for over 17 years.

He’s the previous Director of Schooling & Technical Affairs for the Insurers of Tennessee and, previous to that point, he was employed by Insurance coverage Providers Workplace, Inc.  He’s a graduate of the Illinois Institute of Know-how with a B.S. diploma in Hearth Safety & Security Engineering.

Copyright 2016-2018 by InsuranceCommentary.com. Reprinted with permission.

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