Insurance is an important aid to commerce, industry, and private citizens, alike. Every small business, large enterprise, or individual can develop a substantial number of risks and uncertainties throughout their life and growth cycles.
It may involve the risk to:
- a premises or home
- a plant, machinery, or automobiles
- raw materials or precious metals
- other tangible assets
Property, goods and personal possessions may be damaged or destroyed due to:
- Lightning or fire
- Hail or windstorm
- Damage caused by aircraft
- Riots or civil disturbances
- Smoke damage
- Damage caused by vehicles
- Falling objects
- Volcanic eruption
- Damage from the weight of snow, ice, or sleet
- Water damage from plumbing, heating, or air conditioning overflow
Many of these risks can be avoided by using industry proven techniques known as Risk Management. The process of risk management includes the practice of identifying and analyzing your exposure to loss and taking steps to minimize these exposures to levels acceptable to your company or you personally. This often involves methods or procedures that require direct insurance.
There are five basic types of risk management techniques that can be used to handle your exposures to loss. These include:
- Loss Avoidance – This technique involves making a decision to not engage in any activities that expose you to losses you do not wish to assume. Basically, this means you avoid or eliminate certain activities so that there is a zero chance of a loss occurring in conjunction with those activities.
- Loss Prevention – This technique includes those steps taken to reduce the probability or frequency that loss will occur when engaging in a particular activity. Simply, prevention reduces the likelihood of a loss occurring, while still allowing you to engage in that activity.
For example, developing a strict safety policy and enforcing a strict safety program that requires preventive maintenance and safety checks on machinery and vehicles helps reduce losses caused by defective and poorly maintained equipment. Most companies have a safety policy, but results come from the enforcement of the safety program that supports that policy.
- Loss Reduction – This technique tries to reduce the size and severity of a loss.
For example, fire sprinkler and suppression systems reduce the size and severity of damage to your building and its contents if a fire loss were to occur. There is always tremendous liability associated with property fires.
- Loss Retention – this technique deals with the percentage of loss, in dollars, you can retain without creating undue hardship. In general, the larger the positive cash flow of both organizations or individuals, the larger the loss (or risk) they are able to assume.
Deductibles are the simplest example of retaining risk. If you consistently have large cash reserves from income, it may be in your best interest to have a larger deductible, which reduces your annual insurance premium. This means you may be responsible for the first $1000, $1500 or $2500 of damage to your insured property. Your qualified insurance adviser helps analyze the cost savings, in premium, determining if there is a reasonable benefit to taking a larger deductible versus establishing a smaller deductible and retaining less risk.
- Transfer of Loss to Another – This final technique involves purchasing various insurance policies to cover your specific exposures to loss. This can also mean transference through indemnification or “hold harmless” provisions in a contract. This would include shifting a particular loss exposure to another party, as well as your assuming loss from another party, under the terms of a contract you enter into.
The most common instances of hold harmless agreements are those used by General Contractors with their many subcontractors. Subcontractors are subject to the General Contractors dictated limits of insurance that cover the potential losses due to accidents, shoddy workmanship, or unforeseen delays in completing their portion of a project.
These five principles of risk management are designed to employ the best methods possible to eliminate, prevent, reduce or transfer your risk exposure and avoid losses. Many risks can be avoided by implementing timely precautions, but some are just unavoidable, and beyond the control of a business or property owner. These unavoidable risks should be protected by insurance.
If your Risk Manager or Insurance agent isn’t talking to you about these principles of risk management, I am available to have that conversation with you to verify there aren’t gaps in your insurance portfolio. Get a “second look” for free. I live insurance and believe in the work I do for my clients. I’ll earn your trust, every step of the way!
Next: Specialty coverages that can maintain your company’s solvency!
Insurance companies, generally, do an exterior inspection and/or an interior inspection of homes they insure within 15 days after the effective date of a new policy. Most homes only receive an exterior inspection. An Interior inspection is most often required when a home is 35-40+ years old or is valued over $750,000. Exterior home inspections help protect insurance companies from having to pay for preexisting conditions not disclosed by the insured and identifies potential hazards and risk exposures the insurance company wants to be corrected . Interior inspections help identify the hazards and risk exposures present on the inside of older homes, verifies updates, and documents the quality of workmanship and material grades in “High Value” homes to help establish replacement cost.
An insurance inspection is also a useful tool to responsible homeowners. It may identify specific areas of vulnerability that need to be corrected to prevent further decay, disrepair, and adverse conditions that may devalue your property. Insurance companies always provide reports of the noted defects and give the insured sufficient time for remediation.
Here are some of the most common areas home insurance inspectors look when they come to your home:
Property Inspection Hazard Guide
- Major Hazards:
- (3) or more layers present. (2) or more layers present if the bottom layer is brittle and deteriorated.
- Clumps of moss on the roof surface. Results in curling or lifting of shingles and negatively impact roof integrity and/or the ability to repair the roof.
- Granule loss resulting in the exposed backing of shingle.
- Lack of proper ventilation, resulting in buckling or decking.
- Metal roofs with creases, allowing for pooling of water.
- Missing shingles.
- The presence of tar patches on non-flat roofs.
- Sagging of flat roof. A significant amount of damaged / missing flashing.
- Significant impact marks.
- Significantly curled or split shingles. Excessive splitting of shingles down to nails (shingles in danger of detaching due to splitting).
2. Minor Hazards
- A couple of roof shingles throughout the roof are missing/broken/torn.
- The presence of moss that is not causing other structural damage to the roof surface.
- Sligh granule loss, impact marks.
- Slightly curled or split shingles.
- Aggressive dogs.
- Business involving hazardous materials.
- Swimming Pools:
- (Inground): Yard or pool is not fully enclosed. Fence inadequate to prevent unwarranted entry. Pool entry gate does not have lock or latch. Drained pools not securely covered. Pool damaged (ex: damaged surrounding walkway or damaged fence)
- (Above Ground): Pool entry not secured by a gate with lock/latch or if pool unfenced, does not have retractable ladder present. Pool damaged.
- Trampoline without surrounding net or fenced yard.
- Undisclosed business on premises.
- Undisclosed horses or exotic animals.
- An uneven walkway that is severe enough to create a trip hazard.
- Electrical System:
- Any disposable fuse electric service panel still in use or aluminum wiring in use.
- Knob and tube wiring still in active use or unable to determine if active. Uncovered (open) junction boxes, and/or bare wire splices.
- Loose, unsupported, damaged or improperly installed wiring.
- Electrical panel not properly mounted.
- Rust or corrosion on the electrical panel or other electrical components.
- Exterior electric panel is not “weather tight”.
General Interior Conditions:
- Excessive clutter resulting in blocked access through the home
- fire hazard
- framing damage
- foundation damage
- No central heating system.
- Dented, leaking or rusted fuel storage tank.
- Improper installation of a permanent space heater or central heating unit electrical controls.
- Missing burner panel cover, central heating unit not properly mounted.
- Oil line buried or encased in concrete.
- AC drain pan clogged/leaking in the attic.
- Underground fuel storage tank (if not excluded in applicable states)
The system is in poor condition if it meets one of the following criteria:
- Galvanized steel/iron water supply lines in use.
- Polybutylene water supply lines in use.
- Evidence of water leak or damage.
- Visual evidence of mold.
- Fixtures or faucets damaged, leaking or missing.
- Pipes not adequately supported.
- Water heater damage.
- Laundry washer hoses in poor condition.
Secondary Heating System:
- No UL label present.
- The unit has not been professionally installed/inspected.
- The unit used as primary heat source.
I hope the information I have provided is useful in helping you evaluate potential hazards and risk exposures in your home. Plan your next project soon to help maintain or increase the value of one of your strongest assets! Feel free to contact me for additional information a guidance at firstname.lastname@example.org or (848)303-5973.