"One size fits all!" I saw that phrase on a pair of garden gloves in a store and couldn't help wondering about it. Surely the label didn't imply that a single glove size perfectly fits everyone, even if the gloves are made of some wondrous space-age material that magically stretches to fit the wearer's hands, regardless of their size. There must be a limit to that boast-some ultimate hand size beyond which those gloves will no longer be viable and, as a result, prove less than effective in properly protecting the wearer.
The same is true of insurance. Apparently some people in our industry subscribe to the "one-size-fits-all" philosophy when it comes to recommending proper protective "clothing" for insureds. Comments I read in e-mail messages and hear in coverage classes (particularly E&O seminars) indicate a growing sense among agency folks that, in many insurance situations, one size does indeed fit all. Therein lie at least two problems. First, there is no such ultimate policy. Second, when asked, those who argue it does exist can't agree on precisely which policy meets the criterion. Houston, we have a problem!
Advocates of the single-perfect-size theory fall into two camps. One believes that certain policy form coverages emerge from the ISO labs fully realized and without blemish. This camp includes, for example, folks who wrote to me about my business income article of a few months back to inform me that, although they found the article somewhat amusing, there really was a simple answer to the issue- write a businessowners policy. Within that most perfect of policies, they argued, business income coverage exists without limits, and extra expense and dependent properties coverages are included as icing on the already sublime cake. One must assume that these same folks have finally found the perfect diet, married the perfect person and possess clear, irrefutable evidence regarding who shot John F. Kennedy.
Business income coverage in the businessowners policy, while impressive, is hardly the answer to every insured's prayers. Sure, the amount is unlimited, which may be the real reason so many agents love it. Over the years it has become clear that, for many folks, trying to determine an adequate amount for business income is such a take-a-wild-guess-and-pray scenario that they decide it's better to forego writing the coverage than to risk miscalculating the correct amount. So unlimited coverage is a godsend!
I must hasten to point out, however, that even such extremely generous coverage has potential drawbacks. For example, coverage is limited to a 12-month period (what if the rebuilding takes longer?), and the dependent properties coverage is only $5,000 (insufficient for all but the smallest risks).
Agents who consider the automatic BOP coverage to be adequate also may fail to note that, unless certain options are chosen or declaration amounts changed, the ordinary payroll expense coverage is limited to 60 days (also insufficient for all but the smallest risks). Such limitations were not intended to be snuck in "under the radar" on unsuspecting insureds. Quite the contrary.
For the types of businesses for which the BOP was originally designed (smaller retail, office and apartment risks), the BOP coverages are outstanding. The potential for dangerous coverage-gap formation arises from the constantly expanding eligibility universe wherein I expect to soon see a BOP written for a pollution abatement contractor. Just like that magically expanding glove, BOP coverage for larger and more complex businesses likely will start to wear a bit thin.
The second school of thought considers the term "one-size-fits-all" to mean that every client is entitled to "all-risk" coverage with few, if any, limitations and exclusions. In agents errors and omissions classes, students have told me that anything less than the broadest, most flawless coverage possible is a professional liability claim waiting to happen. A codicil to this concept is that, since all insureds have a right to the "best" coverage, it must be available to them at an "affordable" price.
Hmmm. In many industries, offering varying levels of product quality and service (priced accordingly) is not only accepted but praised as facilitating consumer freedom of choice. If I want to buy a cheap airline ticket and am willing to cram myself in a smaller seat to get it, then I don't have to pay a first-class price. So why does an agent supposedly risk a professional liability claim if he or she offers a consumer the freedom to choose named-peril instead of special-form coverage? We insurance professionals may have dug ourselves into a hole by convincing insureds that they are "adequately protected" only when they buy the best coverage available. But what happens if the insured deems the price for such perfection unreasonable? Then the fault must lie with lazy regulators, greedy carriers or that demon called the "hard market."
Must every recommended property form be offered in a single size, "all risk"? Maybe some homeowners would be quite happy with an HO-2, and maybe we as an industry would be also. Consider how much litigation that turns upon "ambiguity" or the extensively worded limitation clauses common to "all risk" forms would simply disappear if we turned to a named-peril form. The mold issue evaporates unless the damage results from a named peril-exactly what ISO and some states toiled to accomplish by drafting and instituting several special causes-of-loss form endorsements. Concurrent causation ceases to exist as a coverage issue. And just think, the next time someone calls to ask if their flagpole is covered under their homeowners policy if eaten by a beaver, you can simply open their HO-2 to the list of covered perils and say, "You see any 'eaten by beaver' coverage listed here?" Case closed.
Until only one size of client and one size of exposure exist, there will never be a "one-size-fits-all" insurance solution-not from a certain type of package policy like the BOP nor from a certain type of coverage form, like "all risk." All risks are not created equal, so why should they automatically get the same coverage?
To recognize actual coverages and limitations within the various forms, to understand and weave together the proper endorsements, to recognize and properly leverage underwriting and rating rules, to provide clients with real choices for both coverage and costs-that is the art of the true insurance practitioner.
And when it comes to professional service and advice, I'll take space-age ability over space-age material every time.
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