By Victor Gonzalez
If you are reading COINage magazine, it is likely that you have asked yourself if you need insurance to cover the value of your coin collection or inventory in the event of a loss.
In order to answer this question, the concept of “insurance” needs to be defined. In its simplest form, insurance undertakes to protect the insured against monetary loss that is the outgrowth of the happening of some unfavorable contingency. Through the agency of insurance, the burden of risk is transferred from the shoulders of the individual to whom it attaches to a carrier willing to assume it.
With this in mind, you only need to ask yourself whether you are willing to assume the burden of risk. There is a cost involved in transferring the risk to an entity willing to assume it. You are in the position to determine if the benefits of risk transfer outweigh the cost.
Several factors weigh into the decision of your insurance needs. You need to determine if you have an insurable interest. For example, if you have a collection or inventory of coins that would be in your interest to protect against the perils of the coin business, that would be a factor. You need to determine if you can afford a monetary loss that is the outgrowth of the happening of some unfavorable contingency or event.
For coin dealers, sometimes insurance will enhance their businesses. Often consigners are hesitant to release their coins to a dealer unless the dealer has insurance. A lender might require insurance on a collateralized inventory. Finally, there is the peace of mind factor. Some people feel that they sleep better at night knowing that they are protected in the event of a loss.
If you’ve made the decision to insure against the perils of the business, then you must establish how much insurance you need: policy limits. If your insurance policy requires you to schedule your inventory, then the process of establishing a policy limit is simple. If you have an open stock type, one where the inventory fluctuates from day to day, then you should insure the highest limits that you would have in any one policy period, normally a year. There is an exception to this, however. There is no need to insure a high limit when there is a small period when your inventory is unusually high. An example of this would be when a client consigns you a large inventory to take with you to an annual coin convention. In such cases, you should seek a higher temporary limit for a short period of time. This will reduce your annual cost of insurance.
An important gauge in determining the amount of maximum insurance limits is an insurance policy’s co-insurance clause. Standard co-insurance clauses require you to insure a certain percentage of your inventory, normally 80 or 90%. Co-insurance clauses enforce penalties for underinsuring.
Selecting an agent for insuring your coins is as important as selecting the coverage. However, you will find that the selection process is easier than selecting an agent to insure your auto. The reason is that not many agents have the capability to insure rare coins. Therefore, your choices are very limited. The numismatic form is a very difficult form to underwrite for the main reason that the industry is not common. Count the coin dealers, even vest pocket dealers and collectors, in your town compared to restaurants or dry cleaners. An underwriter who writes one or two coin dealers or collectors cannot spread the risk within the class properly. All underwriters expect a favorable class loss ratio. One loss in a class book consisting of one or two dealers means an unfavorable loss ratio and one of two things will result: extremely high rates or loss of coverage.
When selecting an agent to insure your coin inventory, you should consider the reputation of the agent in the coin industry. This can be determined by asking others who are insured with similar needs. You should also consider the ability of the represented insurance company to pay claims and the company’s history in the coin industry for fair, equitable, and timely claims payment. Again, ask around in the coin field, where you will find hundreds of tales of claim experience. Also consider the make-up of the agent’s book of business. This is particularly important because you don’t want to be put into a “pool” of coin dealers and collectors that are likely to have claims, which puts you in a class subject to higher rates and/or loss of coverage.
Let’s say that you now have insurance and you suffer an insured loss. You will need to know what to do in the event of a loss.
Insurance policies have clauses that require you to take certain actions in the event of a loss. These clauses should be referred to and complied with in the event of a loss. This is what you are typically required to do in the event of a loss.
DUTIES IN THE EVENT OF LOSS
– COIN INSURANCE POLICY
Insured must see that the following are done in the event of “loss” to Covered Property:
A. Notify the police if a law may have been broken.
B. Promptly notify the company of the loss. Include a description of the property involved.
C. As soon as possible, give company description of how, when and where the “loss” occurred.
D. Take all reasonable steps to protect the Covered Property from further damage. If feasible, set the damaged property aside and in the best possible order for examination. Also keep a record of your expenses, for consideration in the settlement of the claim.
E. Make no statement that will assume any obligation or admit any liability, for any “loss” for which we the company may be liable, without the company’s consent.
F. Permit the company to inspect the property and records proving “loss”.
G. If requested, permit the company to question you under oath, at such times as may be reasonably required, about any matter relating to this insurance or your claim, including your books and records. In such event, your answers must be signed.
H. Send the company a signed, sworn statement of “loss” containing the information we request to settle the claim. You must do this within 60 days after our request. The company will supply you with the necessary forms.
I. Promptly send the company any legal papers or notices received concerning the “loss”.
J. Cooperate with the company in the investigation or settlement of the claim.
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The most common and difficult question posed to an agent/broker is when the claim will be paid. Insurance companies have a duty and an obligation to settle claims in a prompt manner. These obligations are usually enforceable and are usually part of the policy form. A common term in a policy condition is that the company shall pay a claim 30 days from the time they reach an agreement with the insured, the entry of final judgment, or the filing of an appraisal award.
Although 30 days is normally stipulated, a service-oriented agent will insure that the claim draft is issued within five business days. However, note that this is five days from the date of finalizing the claim. The time involved in adjusting the claim is a different matter altogether. In every loss assignment, the adjuster must furnish the insurer with a report of particulars to justify admission of liability and amount of payment under the terms of the policy. The report usually covers these items:
• Insurable Interest: Has the person who made the claim a right to do so under the policy. Is he or she a specified insured? If not, has he or she a right under the policy as a third-party beneficiary?
• Property: Is the property involved insured?
• Cause of Loss: Is the cause of loss within the scope of the perils insured?
• Date of Loss: Did the loss occur while the policy was in full force and effect?
• Location of Loss: Did the loss happen within the insured location or territorial scope of the policy?
• Policy Conditions and Warranties: Have all policy conditions and warranties been complied with?
• Exclusion: Was the loss caused or affected by a peril which is specifically excluded from policy coverage?
• Claim and Recommendations: What amount is being claimed and what, according to the valuation clause in the policy, is the adjuster’s determination as to the amount of loss?
• Salvage: Is there property involved that may be salvaged and how is this taken into account in the calculation of the amount of loss?
• Other Insurance: Is there any other insurance carried by the claimant, insured, or anyone else which may be called upon to pay or to contribute to the loss?
• Subrogation: Is there any third party who may be held responsible for the loss and what steps were taken to protect the rights of all concerned against such third party?
• General Remarks: Does the adjuster have any criticism of the insured? Was there any misrepresentation or concealment by the insured when the policy was first written or about any matter pertaining to the loss; are there any irregularities involved; is the loss bona fide?
• Enclosures: Are photographs available? Can they show (a) damaged property or undamaged property where damage is claimed; (b) points of forcible entry in burglaries; (c) scenes of serious thefts or other casualties? (Photographs surpass the best word pictures.)
• Documents: Original signed statements, original shipping documents and pertinent records kept by the insured in the regular course of his business (including receipts, invoices, appraisals, bills of sale, cancelled checks and other evidential data) should accompany report to the insurer.
The foregoing data are usually obtained by the adjuster through any or all of the following means:
• Interrogating the person making the claim, the insured and all other interested parties and witnesses.
• Checking with police and official authorities involved, if any, for facts related to the claim.
• Auditing books and records; checking original purchase sources or appraisals to establish identification of property involved, quantities, and values claimed; and establishing ownership.
• Inspecting and appraising property involved in cases of damage.
The adjusting process and its complexity determine the time when a claim will be settled. Some claims take less time than others but there is no true answer to the time question. The cooperation of all involved usually leads to the most expedient claims settlement.
There is no great mystery about the conduct of the insurance business. It is, however, sometimes not quite clear to the layperson how any organization can assume a large risk for a comparatively small premium and, when called upon, make payment immediately after commitment. The insurance company, in the case of coin dealers and collectors, is not necessarily interested in whether a specific coin dealer or collector will suffer a loss, but what the loss ratio will be when a large group of dealers is considered. The equality between the receipts in the form of premiums and what is paid out in losses constitutes what may be termed the insurance equation. An insurance company cannot remain solvent unless it takes in enough funds in the form of premiums to meet all losses. In insurance, as in other business transactions, it is impossible to get something for nothing.
In addition to securing enough funds in the form of premium payments to meet all losses, insurance companies must be able to carry on the business.
A rate structure is formulated to ensure an equitable environment for both the insurance company and the insured. In the case of coin dealers, rates have been classified and vary according to amounts of insurance and the risk involved. These factors are included when determining the rates after a rate class has been identified: limits of liability, deductibles, frequency of exposure (as in the case of show attendance and shipments via courier), protective measures (i.e. safes, fire alarms, burglary alarms), and loss experience
In terms of the cost, what you pay to be insured, a good insurance program will be “menu”-driven, a la carte style. In other words, you pay for only the risk that you need. In this way, you pay a premium commensurate with exposure. For example, if you keep a $250,000 collection of rare coins in a bank safety deposit box, you would expect to pay less insurance premium than if you were to keep that same collection in your home safe. Similarly, if you take a $100,000 collection with you to coins shows and you attend 20 shows per year, you would expect to pay less insurance premium than if you were to attend five shows per year. Obtaining a quote from your agent or broker can be handled simply through an application/interview process.
Victor Gonzalez is a principal of Cleland & Associates Insurance, Inc. of Dallas, Texas, and insures some of the world’s largest coin dealers and collectors. He can be contacted at firstname.lastname@example.org.
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