Are Your Claims Covered?
Changes in the insurance marketplace can lead to coverage gaps
Recent changes in the insurance marketplace can affect policy triggers. To ensure claims are covered, glass company owners should be familiar with the types of policy triggers, the changes in the market and risk management techniques.
Two types of triggers
In the insurance industry, a trigger is essential to securing and maintaining coverage for a claim. The concept of insurance trigger involves two things. First, it requires an event that potentially triggers the obligation of an insurer to respond—usually this is damage or injury. Second, it involves questions of time to determine which triggered insurers must respond. Both components of the policy trigger are controlled by the policy’s terms.
While each policy contract is unique, most insurers use triggers that are either occurrence-based or claims-made. An occurrence policy is usually triggered when a harm-causing event happens and allows a claim for that event to be submitted after the policy expires. A claims-made policy, on the other hand, is usually triggered when the claim is submitted to the insured and reported to the carrier.
Obviously, those descriptions are simplified, and policy terms are more complex. In practice, however, the concepts of trigger are likely familiar even if the names are not. For example, the typical auto and worker’s compensation policies tend to rely on claims-made triggers, which is why it is important to renew policies yearly, negotiate retroactive dates, and advise an insurer immediately after an incident. On the other hand, commercial general liability coverage tends toward occurrence-based policies, with long tails that allow claims for damage to be submitted years or decades later.
Recently there has been a change in the commercial general liability insurance marketplace that upends normal expectations. Specifically, many insurers have priced occurrence-trigger policies at a commercially unreasonable level for many companies. This has pushed many into securing commercial general liability coverage with claims-made trigger policy terms.
This change in the general liability market has been driven by many things across all industries. With regard to glazing and construction trades, however, a frequently identified reason is the lack of reliable loss predictions due to various issues surrounding construction litigation. This data gap hinders actuaries from effectively pricing policies. And this, in turn, leads some consumers to overpay, while others pay far too little for their actual coverage needs.
Potential for gaps in coverage
All companies—glass industry included—must be mindful of the issues accompanying changes in insurance triggers caused by market dynamics. Not doing so risks gaps in coverage. Gaps can result when occurrence policies replace claims-made coverages and retroactive dates are not monitored. Internal policies for claim monitoring become even more important when moving into claims-made policies, because the submission of claims can be an essential step to securing coverage. Additionally, contractual concerns can arise where an agreement requires certain insurance terms or coverage triggers that may not match current policy terms.
Effective risk management begins with an understanding of the policy terms themselves. Business owners should develop a working understanding of the types of coverage triggers policies and how they can affect business practices.
That understanding allows owners to make more educated choices regarding the types of coverage and policy conditions that are essential or negotiable. Like most things, insurance policies are negotiated matters. A more sophisticated understanding of coverage triggers and how they intersect with business models and potential future risk allows for a more thorough exploration of pricing and coverage options. This is a better negotiation start than an approach of simply “getting what we had last year.”
Finally, understanding insurance triggers and the need for policy negotiation can help inform decisions regarding internal tools for data and business intelligence analysis. With insurers forced to price based on uncertainty in markets, a company that can show claim trends, costs and experiences over time may be well-positioned to negotiate an individual rate for occurrence or claims-made coverages, regardless of a data gap in any particular industry.