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March 6, 2023 Other Voices

Make sure your business has adequate insurance to cover property, other damages

Julia Johnson Brinson
By Julia Johnson Brinson

Recently, the Hartford Public Library and Mark Twain House & Museum in Hartford sustained unexpected property damage without proper risk management strategies.

The library suffered significant water damage after a pipe burst over the Christmas weekend. The library is not expected to reopen until the summer.

The Mark Twain House, on the other hand, was vandalized three times in December and early January, with windows and valuable artwork damaged.

In both instances, the library and Mark Twain House were forced to resort to crowdfunding platforms to raise funds for repairs and restorations.

Relying on crowdfunding after a loss begs the question of whether your organization has adequate risk management strategies.

Risk management is the practice of identifying and analyzing loss exposures and taking steps to minimize the financial impact of the risks they impose.

It does not appear the library or Mark Twain House allocated sufficient resources to accept and pay for the risk of water damage or vandalism, which explains the need to resort to GoFundMe to restore the properties.

So, how can organizations protect their assets against unexpected losses so they don’t have to resort to crowdfunding after a loss?

For starters, organizations can transfer the risk to a commercial all-risk property insurer that covers losses arising from any accidental cause, except for those that are specifically excluded.

Organizations should obtain adequate property insurance coverage to protect their physical buildings and the contents inside.

They should also have an insurance professional review policy language to ensure that there are no limitations on the amount of coverage available to cover water damage during annual renewals. Organizations should ensure they have a healthy reserve on hand to cover repairs up to the deductible.

Organizations, if applicable, should procure historic property coverage for properties built before 1950 that are listed on the National Register of Historic Places of a state or local register.

Historic property insurance includes historic replacement cost, which is the cost to repair, rebuild or replace real property at the time of direct physical loss or damage with the same materials, workmanship and architectural features.

If the same materials, workmanship and architectural features are not reasonably available, then insurers will pay the cost to repair, rebuild or replace the property with the closest reasonably available substitute.

Organizations should also consider appropriate risk management strategies (particularly property insurance) for unexpected losses, such as water damage and vandalism. The cost of annual insurance premiums would be less than what would need to be reserved on the balance sheet for losses.

Additionally, crowdfunding — which is an unreliable and unsophisticated way to mitigate unexpected losses — should never be the go-to strategy over sound risk management.

Companies would be well-advised to review their insurance policies for adequate coverage rather than relying on uncertain community donations.

All organizations will experience losses at some point in time. The goal is to have an adequate risk protection strategy in place so that there is certainty when the unexpected happens.

Julia Johnson Brinson is vice president of insurance research at Hartford-based global investment firm Conning.

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