I was working with a client of ours not too long ago who had foreclosed on a horse ranch in a suburb of El Paso. He quickly wanted to get some liability and property coverage in place, as is his standard when acquiring properties. As this was his first foray into horses, we spent a lot of time discussing coverage. I went out to survey the property (good old fashioned field underwriting) and saw that the majority of stables (over 200 of them) were cinder block.
Since this ranch was older than dirt, the stables wouldn’t be covered at anything more than ACV by any legitimate market. I told him to forget the property coverage. He was surprised at my comment. It was an automatic response from him: “I have property, I need to insure it in case something happens to it.” But we sat and chatted…and I reminded him of the fundamental rule of insurance…it’s just transfer of the risk…what is the risk here? The cinder block wasn’t going to catch fire, freeze, blow away, or anything else unless we had some crazy once in a million tornado. And, if that really happened, the values would be so under-insured at ACV that it just wasn’t worth it. What’s the risk? What do you think could possibly happen to these things that would cause you to give me a big chunk of money? Forget it, I told him. Now, we got some good liability coverage and good contracts for the horse owners that were boarding their horses there….because, at the end of the day, those are real risks that you want to protect yourself against. It gave me a great chance to talk with him about risk transferring: those you want to financially, those you want to with legal contracts, and those you’re just willing to take on because it isn’t worth the premium. It’s unfortunate that I think there are too many folks out there who don’t think through the underlying purpose of insurance when shopping.