Factors to consider when purchasing insurance

As an elected official, you will eventually be asked to make a decision about your municipal insurance program. The options could be to renew your current program, move your insurance to a different program, increase limits of liability or add a new coverage.

When it comes time to make this decision, many elected officials will doubt their ability to deal with the issues involved. How valid are these doubts? How much does an elected official need to know to make an informed decision?

Regardless of how many options you are presented with, how many council presentations you sit through (suffer through?) or how many consultants you ask for an opinion, you purchase insurance from one source over another based one or more of these factors.

Coverage: As long as your municipality purchases adequate limits of liability, the fact is that your various insurance options are going to cover just about all exposure to loss that you reasonably expect to be insured.

Note the words "reasonably expect." Even people outside the insurance profession understand that pollution, illegal acts and nuclear incidents are examples of uninsured losses. But you would be justifiably surprised to find out after the fact that a trip and fall or an auto accident isn't covered.

Unfortunately, too many elected officials get caught up in being presented insignificant differences in insurance programs that are immaterial to the city's or village's financial security. Allowing an insurance salesperson to drone on during a presentation about how his program provides, for example, $50,000 of valuable papers coverage instead of $40,000 is a waste of your time.

Price: Comparing the price of one brand of product with another brand is human nature. Whether you are buying toothpaste, automobiles or insurance, no one wants to pay more than is necessary.

Even without a professional insurance background, every elected official inherently knows that there are differences among insurance programs. Some differences are subtle, others more substantial.

Decisions based only on low price result because one of two things has occurred:

• A convincing argument was not made about the additional value being offered in return for the higher price.
• The municipality discounted the additional value as not worth the additional premium.

If you doubt whether a premium being quoted is reasonable, ask for a three- to five-year review of the municipality's premium history. This will provide enough information for you to decide if the premiums being quoted are stable, or if substantial differences require additional information.

Service: This is one of the most used and least understood terms in municipal insurance presentations. I've never heard of a municipal insurance program that promises to deliver anything but the best and most comprehensive service, regardless of the premium being quoted. What you need to define is what service means to you.

If service means a knowledgeable, courteous insurance person who answers questions or handles claims, then there won't be much to differentiate one program from another. This level of service is the minimum you should expect from anyone the municipality deals with.

To others, service may include the professional expertise of your broker or agent, the level of loss control services available, the relevance of loss and risk management information provided and the quality of claims service.

Since the significant differences between insurance programs are usually in services rather than coverage, it might be more helpful in your analysis to question the additional services that are included in the program being reviewed.

Trust: The intangible factor behind most insurance decisions is which insurance representative you are more comfortable dealing with. Your current representative should have home-field advantage in this category, and references from other municipal clients are helpful. But each of us, through our life experience, develops an ability to judge character. The purpose of a council presentation on insurance should be not only to gain technical knowledge, but also to take the measure of the person wanting to provide service to your municipality.

To make an informed decision on your municipal insurance program, focus on the one or two factors that are most important to you. Most elected officials do not have a professional insurance background. Your ability to judge character and determine whom you can trust may be your most important asset.