Guest Column: Behold, I tell you a mystery (We shall not all sleep)
By Kerry Knodle
(See related story by Brandon Reid)
Insurance has always been a bit of a mystery to me. Its one of those must have things in life, either because government tells us we must (auto insurance), or because our mentors tell us so ( you cant afford to be without it). And yet, to the average person, navigating the treacherous waters of buying and using insurance is something akin to trying to read the Tax Code. What insurance should I have? How much? What limits? What are the exclusions? Do I really need that coverage?
This is especially true if you own a businessin my case, a non-profit organization I founded 10 years ago. In our case, the things that we do have always been a bit of a mystery to insurers: Our major program is called YouthBuild, and works with high school dropouts to teach them job skills in construction, manufacturing or computers, and finish their GED. They build houses for low-income families, and do thousands of hours of other valuable community service work each year. Sounds great, doesnt it? It is, and yet to those mysterious people called underwriters, its not all that great. Where we see good and charity, and community improvement, they see risk! We own several homes and apartments that we fix and rent to low-income families. Again, sounds great, but they see riskbad tenants, damage, careless smoking … the list goes on. These perceptions, while not grounded in the reality that we see every day, are created and perpetuated behind a veil of secrecy and anonymityyou never really talk to these people, only your agent.
This brings me to the current mystery. Since we began our organization 10 years ago, we have grown considerably. We have had the same insurance company since 1996, and we have spent most of that time educating them on what we do, and trying to fit the changing nature of our business with the proper insurance coverages. It even turned out that the loss prevention specialist for this company was a friend of mine, who regularly came to visit, expressed to me how impressed he was with what we did, and even helped us fine-tune our safety program.
So, imagine my surprise (shock, really) when the company recently sent us a letter saying that they were not renewing any of our insurance because they were no longer interested in insuring this type of risk. No explanation. The best the agent could tell me was the market has really changed since 9-11. Can I call someone, I asked? Can I protest? Not really, was the answer. They are allowed to do this, he said. Was it because I have had some claims? (By the way, I thought that is why we had insurance…to pay claims.)
Now it gets even more mysterious. Our agent went on the search for someone to insure our two companies. He found a couple that would insure our for-profit subsidiary (a construction company). The premiums TRIPLED! We were put into the state pool for Workers Comp, because we had had a few claims. Actually, two of the claims were fraudulent (they videotaped the former employees working while they claimed to be injured), but they settled anyway, saying it was cheaper than paying the legal fees to fight it. They saved money … our rates skyrocketed, and those claims were held against us.
Our former insurer agreed to insure the main organization for another 30 days to allow time to find other insurers. My agent kept calling, saying that he was really having trouble finding a company that would insure us. Why? I asked. They dont want this or that type of risk, he said. Maybe one would be comfortable with the construction part of our business, but doesnt like the habitational (rental properties), or vice versa.
Today, he came to see me, a day or two before the deadline expired. He found companies that would write our various policies, but … thats right, the premiums are going up. I braced myself as he walked me through the various pieces, but there was no way I could prepare myself for what the bottom line turned out to be. Last year, we paid about $23,000 in premiums, and now … now the tab was going to be $135,000! AN INCREDIBLE 486 percent increase overnight!
He could not find anyone to insure our properties except Lloyds of London. General liability insurance was going to cost us $65,000 a year, even though we had only one GL claim in six years for $580.
How can we possibly afford this? What are my alternatives? I dont know what to suggest, he said. We have tried every conceivable carrier, including some who specialize in nonprofit organizations. He talked to an Illinois company that insures a very similar organization in Ohiodeclined. He talked to a nonprofit insurer, who insures another, similar local nonprofit. Declined. And oh, by the way, we need you to write a check on Monday for 25 percent of the annual premium, the minimum they will accept to bind coverage. Can I do this month by month? No, you must buy at least three months of insurance before you can cancel if you find a better deal.
I spent some time crunching numbers. Since January 1996, we have paid $161,968 in insurance premiums just for the nonprofit agency. In that same period, the insurance company has paid about $31,000 in claimsor about 20 percent of what we paid them. Even considering their administrative costs, and not counting what they made by investing our money, they made a profit of 80 percent. Not bad, I thought. I should be in that business. But more importantly, how could these numbers give anyone cause to not renew our coverage?
Its too early to tell what will come of all this. To most businesses, this kind of hit would mean one of two thingsclose up shop, or simply drop all but the most critical of coverages. The agent and I agreed to make a number of changes to try to bring down the premiumraising deductibles, lowering coverage limits, etc. We dropped some unnecessary coverages (like Advertising Injuryprotection in case I run an ad that offends someonehow did that get in there in the first place?). The verdict following these changes probably wont be significant. I have several other agents searching for insurers, so far with no success.
Where does one turn for help in a situation like this? I intend to make our case to a variety of folksstate legislators, congressmen, business leaders, the insurance industry itself. I expect a lot of sympathy (How could they do this to you?), but not a lot of real help. The insurance industry is large and powerful. Nonprofit agencies are probably, on the big radar screen, but mere specks. We dont have a lobbying arm, or a statewide association that works for us on matters like this. Ill probably even write to the governor-elect, although hes got big fish to fry with the states budget. We are largely grant funded, and there are really no foundations or government grants you can get to pay for your insurance. In fact, most granting agencies limit your administrative costs to 10 percent, which includes lots of things besides insurance.
Georg Frederick Handel, in The Messiah, told of this great mystery. He said that we shall not all sleep, but we shall all be changed. … He was right on the money. This changes EVERYTHING, and it very well might be the last trumpet.
Kerry Knodle is the founder and executive director of Comprehensive Community Solutions, Inc. Please feel free to share or distribute this to anyone you feel might benefit or be able to help.