Alberta Risk Advice by Cielito Villanueva

I have noticed recently that there seems to be a growing trend in consulting, training, or coaching. Although each of them provides a unique service, a lot of consultants have one thing in common: a written agreement with their clients but even a contract or waiver/release written by the best lawyer couldn’t guarantee that a client won’t file a lawsuit. In fact, it is a democratic right to make a claim if a person feels they have suffered financial and emotional damages. Moreover, today’s society is becoming more litigious. People are becoming more opportunistic. So much so that rarely is one company named in a suit, but several are named in hopes that one of them will be held liable.

But why should a consulting business be concerned if they are only providing advice or recommendations, and not forcing a client to do whatever it is they are consulting them to do?

As a consultant, you are marketing yourself as an expert in solving a client’s specific problem. Regardless of what your contract states, a client is paying you to satisfy a need. Don’t get me wrong, a lot of times if a need is not met all you will probably get is a complaint and perhaps some lost referrals. But what if a client feels that as a result of following your advice they have suffered financial or general damages such as pain and suffering or inability to perform certain functions? What if they present this to a lawyer who feels they might have a case? If it is filed in small claims court you could defend yourself, but if you don’t want to take the chance or if it doesn’t end up in small claims then you have to consider hiring a lawyer to defend you no matter how trivial the case may be. I don’t think I need to state the obvious, but the costs to defend yourself can easily exceed the actual damages sought by the claimant.

Do you set aside money for legal defense for your business? If yes, how much are you prepared to lock away? If no, then you’re like most businesses because it’s not possible to predict how much you will need to put away for future legal defense costs. You could set aside $1,000 a month starting today, but if you get sued in four months you will have only $4,000 to defend yourself. In this case, you better hope the claim is low or judged in your favor fast, but realistically you’ll need more than hope; you’ll need a plan.

So what can a consultant do to plan for the often high costs to defend claims?

As a consultant, you would be wise to secure yourself with an Errors & Omissions Policy, also known as Professional Liability. Not only is an E & O Policy for doctors, lawyers, architects, or engineers, but it is also for other professionals who may be exposed to claims made by clients–frivolous or not. Additionally, you should ask your commercial insurance broker to give you specific details of the coverage for defense costs such as the dollar amount limit. More importantly, your broker will explain more of the benefits of an E & O Policy specific to your consulting business.

In essence, claimants are motivated to sue because it often does not cost them a dime as their attorney will collect their fees after a settlement or judgment in their favor, but a defendant does not have that luxury. So whether you feel you have no exposure to liability, you are certainly exposed to the costs to defend.

Cielito V

When was the last time you looked at your insurance policy? Have you ever considered if the deductibles in your policy reflect your insurance philosophy? To be specific, ask yourself if you believe that insurance is a maintenance contract. For instance, let’s say you have minor damage on your shop’s entrance from an attempted burglary. You get an $1100 estimate to repair the entry locking mechanism and broken glass. The policy deductible for your shop is $500. You decide that since you’ve been paying premiums for the last five years with no claims that you will let the insurance cover the remaining $600 and you’re perfectly entitled to do so. A few months later on your renewal you notice your premium went up by $800 so you’re infuriated because you feel that you are being penalized for a claim that you had every right to make. But hold on a second. The insurance company did not raise your premium; they merely did what they had every right to do which was to remove the claims-free discount. Was the claim worth it? Some might feel it is and they are the ones who feel that insurance is a maintenance policy.  To claim any minor losses they encounter; a philosophy that is neither right nor wrong, but I can almost guarantee they are not paying the lowest premium possible.

On the other hand, there are those who believe that they want to go through years and years of paying the least amount of insurance premium while maintaining effective coverage. These folks are the ones who carry high deductibles which gives an additional deductible discount on top of a claims-free discount. Their insurance philosophy is that they will only ever expect to use their insurance in a catastrophe. For example, an electrical fire in a shop causes $35,000 in direct physical damage as well as an additional $115,000 in losses due to the business being shut down for three months for repairing the damaged section of the shop. This totals $150,000 in damages for which the shop owner paid a $2500 deductible. The following year his policy renews at $1,000 more per year and will remain so for the next three years for not having a claims-free discount.  So after years of paying low premiums he paid out a $2500 deductible and $1,000 in higher premium for the next three years which totals an additional $5,500 out of pocket. Was that loss worth claiming? To the shop owner it was because the insurance company paid out $147,500 to repair their shop and replace the lost revenue for being closed for three months.  One must be convinced that this scenario gives clarity to the benefits of an insurance policy.

In the end, both philosophies exist and both are very valid, but only you can decide which philosophy to go with. When you have given it a great deal of thought, get in touch with your broker to make the necessary changes that reflect your philosophy.

Sooner than later, the insurance market will harden as catastrophic losses increase and the resulting claims rise. Additionally, the increased competition throughout the past several years has driven premiums down; at some point, insurers will need to replenish their pool of funds from which to pay claims if they expect to stay out of the red. If new business is not enough to build a bigger pool, insurers will look to the next logical avenue: increasing premiums. When this will happen can only be speculated, but it is inevitable.

In spite of this seemingly negative news, you can look at this as an opportunity to “hedge” the future increase in premiums by investing the current savings you are getting in today’s soft market towards improving your risk management policies, towards a safer work environment, upgrading equipment such as a UL300 automatic fire-suppression system, or researching cost-effective methods of controlling loss. You should also look to solidify a relationship with an insurance company through a broker who will be in a better position to negotiate for you as the insurance company’s comfort level of your business improves with time and with your efforts in reducing loss. This also means playing ball and providing your broker with the information being requested by the insurance company. Your broker will commit to making insurance transparent to you, but it also means that you need to make your business transparent to the insurance company.

All in all, there are many things you can do to put yourself and your business in a better position when the hard market arrives. Talk to your broker about any concerns you may have and they may provide you with more details in preparing for the inevitable.

Cielito V

In insurance terms, risk is the possibility of suffering financial loss by partaking in business activities that are intended to generate profit. The more services and products you offer, or the more territories you cover and the more revenue you generate, the greater the risk. Think of your business as a person: one who locks themselves in a room and disconnects themselves from the outside world lowers their risk of accidental injury while one who is always connecting with people, partaking in many activities, and traveling all over the world increases their risk of accidental injury.  The difference between the two individuals is that the one who is active and in constant motion will most likely be rewarded financially–not always but more likely than not. Now replace the person with a business and the same principle applies.

So with that said, how does a business protect themselves so they can take the risks necessary to discover success?

By implementing a risk management strategy or reviewing their existing one. More importantly, by understanding how the commercial insurance policy fits into the risk management picture and how to get the most out it. For instance, when was the last time you asked your insurance broker to sit down with you to review your insurance policy? They can make recommendations and give you advice to explore the areas of risk in which you can control the losses as well as reduce your costs in premiums by exploring different coverages, limits, and deductibles. Whether you actually use the advice is up to you, but the service is absolutely free. Depending on the agency, your broker will even go to your place of business to address any concerns you might have about loss exposures. You will never know unless you ask, and even then, the risk would be nothing, but the reward could be everything.

In T.S. Eliot’s famous words, “Only those who will risk going too far can possibly find out how far one can go.”

Cielito V

Hello folks,

I thought I would make this one of the first few posts because it is one of the first “minor” issues that I run into when I meet someone new. Cielito, by English standards, is pronounced “sill-lee-toe”. For those that are linguistically ambitious, its Latin pronunciation is “See-yell-lee-toh”. It means little heaven or little sky in Spanish and I am told it was my grandmother on my mother’s side that was responsible for all the childhood torture that I experienced. Joking aside, I have been told by some that they feel anxious when it came to saying my name. I don’t blame them since it is not your typical biblical or European name. It is not even a Spanish name as I had recently experienced in Mexico. How do I feel about it? I feel quite different, but really more unique. I am quite proud that everyone I know will probably only know one Cielito and most of the time I don’t even have to say my surname; I almost feel like a celebrity (Prince?) Most of my friends call me C but some who have never met me have called me Leo, Toledo, or even Joselito. I say whatever you are comfortable with is alright with me because the last thing I want is for someone to feel anxious when they are about to address me. This way if you run into me in person, call or email me, you don’t have to worry that I will be upset with a mispronunciation or a misspelling. Besides, after a few meetings I am certain it will be second nature.

Cielito V, aka C, aka Leo

Welcome to Albertariskadvice.com!

In my commitment to make the insurance industry more transparent, I have created this website which I will fill with valuable information that I hope you can utilize when reviewing your insurance policy and risk management/loss control practices. Stay tuned for more!

Cielito V