Insurance Made Easy….?

Question: What is the least-read, best-seller?

Answer: Your insurance policy.

The world of insurance is not too exciting for most folks, but certainly necessary to provide financial stability in the face of unfortunate events. So, the question becomes, if I am not an insurance expert, nor do I aspire to be one, what do I need to know? What follows is a very basic overview of insurance as it relates to covering municipal property and operations.

Essentially, insurance; not including health, life, disability or other benefits; can be divided into two broad categories: liability coverage to protect against alleged damage or wrongs caused to others; and property coverage to protect against loss or damage to owned assets. As an example, an auto policy has a liability section to pay for damage or injury resulting from accidents that are your fault; and optional coverage for damage to your vehicle depending on the needs of the car owner.

The types of coverage that a local government entity needs are determined based upon their operations and services. For example, most, if not all cities need three basic types of liability coverage: auto, “general” and “public officials.” The general liability coverage protects against things like potholes in streets or defects in playground equipment. The public officials’ coverage protects against “wrongful acts” that result in monetary loss, but no damage to property or person since these types of damages are contemplated under auto and general liability. These basic liability policies do not cover all types of damages, therefore other liability coverages are often needed. Examples include law enforcement liability, watercraft liability, aviation liability and malpractice. A good way to know if you have a gap in coverage is to read the exclusions of your general and public officials’ liability policies. Excluded items are often picked up under another coverage or a change to the existing policy (by endorsement).

In addition to coverage against liability claims, a city needs property coverage. Examples include:

• owned buildings and their contents;
• property in the open such as water tanks, lift stations and wells (note, these assets can be easily overlooked for coverage because they do not have a street address and may be located by off the beaten path, such as by a creek);
• tractors, motor graders, backhoes, i.e. mobile equipment not licensed for road use;
• crime to cover loss of money and securities; and
• bonds to cover employees.

Cyber is another form of coverage that includes both liability and property components. The property involved can be data, financial assets or operation of servers. The liability portion of a cyber policy provides protection if data, such as personally identifiable information of others, is compromised resulting in costs to notify the individuals, provide credit monitoring or respond to a lawsuit. The property portion of the coverage provides protection to pay for incidents such as a ransom for servers that have been locked down by a hacker, services to recover data, a breach coach in the event of a hack, and perhaps “deception fraud” should someone be duped by a phishing scam or wrongly click a link in an email. This is an evolving coverage, so terms will vary between providers. As important as the coverages are the services and training available to prevent a breach and/or appropriately respond following a breach. Employee training, sample policies, etc. are readily available via a website from most cyber coverage providers. This service is available from the Pool’s website, just log in and click “e-RiskHub.”

Most local governments have a “risk manager” assigned responsibility for the insurance coverage purchased by the entity. In smaller entities, this person wears several other hats. Understanding these basic tenets hopefully help in not only understanding insurance but in asking the right questions to be sure your property and operations are properly covered.