Buyer and Agent Beware

BOP’s Changes for the Better or Worse?

Just when I really think I understand a coverage I am blind-sided by the reality of what is actually happening in the insurance industry. I remember the good old days when a business owners policy (BOP) was a simple policy designed for a limited category of business risks and easy to rate and understand. The BOP of the old days is gone, replaced by a policy that is written for a much larger and diverse group of businesses. As such, the BOP has been modified by insurers sometimes to the consumer’s disadvantage.

I was recently teaching a class on the BOP and stated the obvious — that a BOP was a package policy combining property and liability on the same form. A hand was raised in class and then another and another to correct me. The “hand waver” said that a BOP is not always a package and that, in fact, they write monoline BOP policies. This statement coming from a company underwriter was followed by others in the room.

In researching the statement, I found that many insurance companies do offer either property or liability written alone using the same form language as they do on their BOP. This is only done for classes of business that qualify for the BOP to begin with but where the company may have underwriting issues with either the property or liability side of the coverage.

Typically, the criteria for writing monoline coverages occur when either the liability or property is written separately by another carrier, often times in the excess and surplus lines market. This might happen when the liability exposures are too hazardous but the property exposures qualify, or when the property exposures are too small to insure or the insured has chosen not to insure the property. Needless to say, it is good to know that this is an available option with our standard BOP carriers in cases where we may have thought our only remedy was to get monoline coverage with our wholesalers.

Scary Reality

That was the good news — now for the scary reality. I asked the question, “How does the business income on the BOP differ from other forms?” The answer always is that it is an actual loss sustained (ALS) policy. Well, the truth is that all business income forms are actual loss sustained, unless they are per diem, which simply means the business income claim will be paid based on the economic loss the client actually sustains. What has been true about a BOP is that it has historically been “unlimited” in the dollar amount it would pay subject to a maximum time frame such as 12 months. Well, not any more — buyer beware. BOP insurance carriers are, in fact, limiting coverage on the business income portion of the BOP using many different approaches.

Some BOP companies are adding endorsements that state they will pay the greater of a time frame (12-15 months) or the limit of insurance for business income that appears on the declarations page, which has a coinsurance requirement. That is far from what we have been telling our clients when we use the words actual loss sustained. Also, it is anyone’s guess how the form would respond to a partial business income loss.

Some BOP carriers are writing on an ALS basis but for certain types of insureds they are putting a maximum amount recoverable. An example is one carrier indicated that for manufacturers that were eligible for their BOP program they would limit coverage based on up to 65 percent of the total sales of the company. Again, this is far from a “limitless policy.”

Some BOP carriers are limiting the amount of business income coverage based on types of equipment. An example provided was a doctor’s office that had an expensive diagnostic machine. There was an internal limit on the BOP business income specific to any loss to that piece of equipment.

Read Policy Language Carefully

What is apparent is that we have to read the BOP language carefully and thoroughly. We have to look at our renewal policies for restrictive changes in the business income coverage. We have to look beyond just the declarations page to what the forms and endorsements actually say. We have to be careful what we say to our clients and communicate if there have been changes. Lastly, we have to be very careful what we say on our proposals about the coverage. We want the policy to say it all and not be held responsible for something we say that differs from policy language that could create an error or omission on our part.

Topics Carriers Agencies Profit Loss Property