Risk Management

Blanket Insurance: What You Don’t Know Could End Up Costing You Millions

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Author:

Daniel Singerman

Daniel Singerman

Dan joined Risk International in 2014 as part of the acquisition of Consolidated Risk Management, where he was a risk management consultant. Dan’s experience gives him a unique perspective from which he can identify and manage corporate risk, and recommend claims control and risk management policies. Prior to joining Consolidated Risk Management, Dan worked for nearly five years as an attorney in the litigation department at the Cleveland law firm of McCarthy, Lebit, Crystal & Liffman. As a litigator, Dan worked closely with small- and large-business owners, developing a clear understanding of the risk obstacles that they face.

Daniel Singerman
As we head into the chill autumn weather, I thought it appropriate to discuss the importance of having a warm blanket when it comes to your property insurance. Mid-market businesses are often neither aware that their property insurance may be written on a coverage-by-coverage or specific insurance basis nor are they aware of the distinct benefits that blanket coverage offers. What is the difference you ask? The best way to explain is by way of example.

In one instance, we recently performed an exposure analysis and insurance audit for a manufacturing company. As shown in the table below, we discovered that the company’s property coverages were not blanketed and that the insured values were inaccurate.

              

Exposure Insured Values If Total Loss
Building $ 9,600,000 $ 7,600,000 $ 7,600,000
Personal Property $ 8,350,000 $ 13,550,000 $ 8,350,000
Inventory $ 8,600,000 $ 6,500,000 $ 6,500,000
Totals $ 26,550,000 $ 27,650,000 $ 22,450,000

The company had exposures in the case of a total loss of $26,550,00 for the three categories of property listed. The company was paying for more insurance than it actually needed because the total property limits were $27,650,000, more than a $1,000,000 higher than the actual exposures. But what was even more concerning was that in the event of a total loss, the company would have recovered $4,000,0000 less than its losses! Why? Because the three categories of property were insured separately and the most the insurance company would have been obligated to pay would have been the specified limits for each category of property.

By contrast, blanketed insurance covers more than one type of property at the same location, the same kind of property at more than one location, or two or more kinds or property at two or more locations under one total limit. In our example, had it obtained blanket coverage, the company would have been entitled to access the total limits of $27,650,000.

Blanket insurance provides other advantages as well, particularly when the blanketing is done over multiple locations. For instance, suppose a manufacturing company has two plant locations with replacement cost of $5,000,000 each. Suppose the company’s policy was written on a replacement cost basis with limits of $4,000,000 for each location. If one of those plants was destroyed by fire, the company would only be able to access $4,000,000 worth of coverage if the policy was written on a specified limit basis. But if the property was blanketed (and assuming there was no co-insurance requirement in the policy), the company could access all $8,000,000 of the policy limits and would be sufficiently insured for purposes of rebuilding the destroyed plant. In such situations, the blanketed policy acts as a cushion in case the policyholder underestimated the cost to repair or rebuild the damaged property.

So do yourself a favor, as fall turns chill, take a look at your policy to see if you have blanketed coverage. It could help to keep you warm when and if you need it.

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