— Insurance —
September 1, 2011
Comparing Apples to Apples Can Equal Rotten Coverage
The amusement industry is evolving and changing in many ways. For the owners of small and large amusement centers, this presents a constant challenge for you in keeping up with new equipment, added attractions, upgrading your current games and even expanding to open up additional locations.
Your time dedicated to running your business and also dealing with all the new issues takes up all your waking hours. It’s no wonder, that when insurance policy renewal comes around each year, people often take the easy way out. You get a few agents to give you quotes, see if you can save some money on your current insurance, and then get on to your next important task.
What typically happens in the easy way out is you give your current policy to the several agents with the instructions: “Just quote apples to apples so I can compare your price to my price.” Most, if not all agents will do exactly that, and you may accomplish exactly what you set out do – get a lower premium. Now with that out of the way until next year, you are back to dealing with all your other daily issues of running your business. This same procedure plays itself out year after year. “Quote my policy exactly like it is and just try to save me money. Apples to apples!”
What just happened here happens in every business across America. So what’s the issue? Plenty. Each year your business is a dynamic instrument of change. You have added new computer equipment, added new arcades to your game room, replaced the
old laser tag equipment with new more expensive phasers, added on a new game room, etc.
When you simply ask your agent and others to quote “apples to apples,” using your old building and contents values, you keep falling further and further behind of what your true replacement cost values really are. Insurance is a contract, which means at the time of a loss, you get paid only for what is insured, and for the limits and coverages, stated in your policy. No more, no less.
You must look at your business in terms of having a total loss. You need to itemize your entire replacement cost of your building, contents, equipment and your business income. I am sure once you do this process, you will most likely find that your current insurance policy values differ from the values you just completed.
Here are some questions you need to ask yourself in evaluating your policy coverages: Can you rebuild your building for your current policy limit? Did you add on to your building without increasing your policy limits? If you lease your building, did you do any changes to your inside walls (adding rooms, bowling alleys, etc.) that is not listed on your current policy? Did you buy equipment during the year that you never added to your policy? All these items will never be insured adequately if you just simply ask your agent to “Just quote apples to apples.”
The first step to proper coverage is to evaluate your current building value (if you own your building) as it stands today. Does your policy cover you for the full value? If not, do you plan to rebuild, and if so, where will you get the funds in order to rebuild the building? If you do not have the funds available, then you need to be sure your building is insured to its full replacement cost value.
Next, you need to itemize your entire inventory of games, computers, attractions, kitchen equipment, inflatables, etc. and list the replacement value of each item. Again, in event of a total loss, does your current policy insure everything to its current value? How will you replace this equipment if you plan on re-opening right away?
Next, you need to consider how you will continue to survive month to month, while your business is not operating, and you have no income. Loss of income is a vital coverage that you need to add to your policy. If you have no other means of income, can you survive up to 12 months with no income while your business is being rebuilt? Remember, we are assuming a total loss.
You may have business loans to repay and you will need to also insure your personal income for your family bills. Loss of income will pay you for all lost income (less non-continuing expenses like utilities, cost of goods, ordinary payroll, etc.). This coverage will allow you to survive while your business is being rebuilt.
Other important coverage items that you need to discuss are crime coverage, sign coverage, flood and wind/hail (if it is excluded from your policy), sexual abuse, hired/non-owned auto and ordinance or law and employers practice and liability (EPL). All of these coverages, and more, should be part of your insurance review from your agent(s).
The final part of reviewing your property coverages should include the following:
• Deductible: Discuss how raising or lowering your deductible will affect your final premium. However, keep in mind that in a loss, the savings for a higher deductible may be too much of a burden ($1,000 versus $5,000) at the actual time of a loss. Can you afford the $5,000 deductible? Is the higher deductible obligation worth the savings associated with it? There is no right or wrong answer to this question. Only you can decide based on your own personal finances.
• Co-Insurance: This requirement contained in most, if not all commercial policies, requires you to insure your building and/or contents to their replacement value of 80 percent, 90 percent or 100 percent (see your policy for your specific limit). This requirement obligates you to have insurance to value, at the time of the loss, or you may not get paid the full loss amount of your claim.
This single requirement is the most important contract obligation you have in your entire insurance policy. This is why it is vital to have your building or contents limits at their true replacement cost. You need to understand this requirement in your policy. This is another reason that comparing apples to apples leads to rotten coverage.
A simple example of co-insurance is that if you are 50 percent underinsured on your building or contents – then you will only receive 50 percent of your loss. (Regardless of how small or large that loss is!) Your agent can explain this further and give you more specific examples.
Coverage First – Then Lower Premiums
If you keep this one thought in mind when you review your insurance policy each year then you will never be surprised if and when you have a loss. Your business is your livelihood and your insurance policy, with proper coverage, will allow you to continue on with your business despite small or large losses.
Demand your insurance agent, and any other agents quoting your insurance, to do a professional job for you. Get your coverages up to their current replacement cost value. Your agent owes you that obligation. Do this year after year. Saving money on a policy that leaves you with only 50 percent of the money you need to replace your building or your contents, could put you out of business. –