Welcome to the Terminal Value Podcast
Nov. 30, 2020

#12 Insurance Dynamics with Kevin Baty

#12 Insurance Dynamics with Kevin Baty

Insurance is a topic that most people avoid talking about because it feels very boring and involves the thought of loss.

The thing that people need to understand is that Insurance is a necessary part of life and that strange things have a way of happening at very unfortunate times. This means that being prepared for catastrophic events is a critical part of life.

To be properly prepared, we must first become educated. Kevin and Doug talk about how insurance works and provide some practical tips for optimizing your profile to ensure you carry the coverage you need at the lowest total cost possible.

Kevin Baty is a broker for Hagen Hamilton Insurance Solutions. Connect with him at: Kevin@haganhamilton.com

Doug's business specializes in partnering with companies and non-profits to create value and capture cost savings without layoffs to fund growth and strengthen financial results. 

You can find out more at  www.TerminalValue.biz

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Welcome to the terminal value Podcast where each episode provides in depth insight about the long term value of companies and ideas in our current world. Your host for this podcast is Doug Utberg, the founder and principal consultant for Business of Life, LLC.

Doug: Here and Kevin Baty has the auspicious honor or maybe you wouldn't say it that way.  Depending on who you are of being my insurance agent because we are going to talk about some insurance dynamics today because in my conversations with Kevin I actually learned a lot of things that were a little counterintuitive and I thought that those would be good things to share with people just because you know insurance is kind of you know a murky subject and a lot of people feel like it's pretty boring. And you know while it's not necessarily the thing that lights everybody's fire so to speak. There are some insurance things that you really should know about and I'm just gonna let one of the cats out of the bag first. The one that surprised me the most is if you see a deer crossing the road instead of swerving you're actually supposed to just plow right into the deer because if you swerve and hit a tree that's a collision claim that goes on your record. If you just hit the deer that's a comprehensive claim that doesn't change your rates and I know about that thanks to this guy right here. Kevin welcome to the terminal value podcast. 

Kevin: Thanks for having me Doug, very excited to be here and yeah the misnomer with a deer like I mean you feel for it. You don't want to.

Doug: Oh right.

Kevin: Damage your vehicle or anything but you know it's kind of tough to tell clients that if you see a deer on the road and you can't stop you just have to plow through it for your insurance safety pretty much because if you plow right through it's covered under comprehensive coverage and you know. Yes it's a claim but there's not a surcharge with it like there would be is if you left the roadway to swerve to miss a deer and you total your vehicle anyways well now it's an at-fault accident because you left the roadway. So lots of claims are paid out every year especially in Oregon, Washington and all across the united states on claims for people hitting deer and it's in the multi-millions of dollars it's just.

Doug: Wow that is wow.

Kevin: So when in doubt I mean easier said than done. I even you know I'm an avid hunter.

Doug: Yap.

Kevin: And I don't want to plow through a deer.

Doug: Oh no no nobody does. But that's yeah that's that's one of the things that's that yeah that one surprised me. Another one that you mentioned I mean I'd known about this one before but was the importance of umbrella coverage and uninsured motors coverage. How that's that that's one that's easy to miss.

Kevin: You know what one of the craziest things that people just have no clue what their coverage means. When I first got in the business back in 2007, I was just amazed that you know I'd sit down with a new client or a new prospect that I would ask them but when was the last time you had your insurance reviewed? And the answer was generally never or maybe when I first signed up. Then this the follow-up question is well, do you know what these coverages mean? And they say yeah it means I'm fully covered. Like well of course kinda like what does full coverage mean. So you know with an umbrella policy I highly recommend it for everyone especially if you own your house.

Doug: Yeah.

Kevin: Where you own other property. Where you have assets that you can potentially lose because auto accidents are called accidents for a reason or insurance claims.

Doug: Yeah.

Kevin: Are accidental with no intent. So you want to make sure that you have the proper coverage in place.

Doug: Absolutely.

Kevin: You know, if something was to arise, and you get a lot of clients saying, well, I've never caused snap fallbacks. I've never done this, or I've never done that. Okay, congratulations. That doesn't mean it can't happen tomorrow. And if you don't have the proper coverage, you could be a victim of losing it. Also, also with umbrella coverages, your auto liability limits need to be harder or higher, excuse me, and that also protects you. 

Doug: Yeah.

Kevin: You brought up the uninsured motorist.

Doug: Correct.

Kevin: And that is one of the big misnomers of I've had clients say, Well, my liability protection is 500,000. Combined single limit, which means 500,000 per x. Oh, but my uninsured motorist, I don't need that, oh, in Oregon, you're required to have it. And furthermore, that's the portion that protects you.

Doug: Yeah.

Kevin: Against someone that doesn't have very good insurance.

Doug: Liability doesn't help you.

Kevin: No.

Doug: Well know how to help somebody else.

Kevin: Right? So you know, how to make insurance talk exciting, you know, it's just, it's knowing what it means so that you have a peace of mind.

Doug: Yeah.

Kevin: Knowing that you have proper protection.

Doug: And so, you know, not everybody listen to this podcast is going to be from Oregon. But just for reference, I tell people, what is the state minimum automotive coverage for Oregon, because it's going to be it is a shockingly low number.

Kevin: Right? It's mind boggling. It's $25,000 per person for bodily injury, harm 50,000 per occurrence. In case there's more than one person in the other vehicle, and $20,000 property damage towards other vehicles and structures. So let's just take, let's just say you had that coverage, and you ended up totaling at Tesla, that's worth $80,000.

Doug: You're gonna blow through that pretty quick. 

Kevin: Yeah, your insurance company's gonna say, we're on the hook for 20. We don't care what happens to you for the other 60. And then bad things happen, your wages can get garnish.

Doug: Well, and and go ahead.

Kevin: Oh, and just boils down to not be improperly informed. A lot of people they call these wanting 100, cheap insurance, I just want whatever's required by state or I don't have any assets, or anything like that. I don't care. Well, you will if an accident was to happen, I mean, one of the easiest things that can happen here it is. Daylight Savings times changed.

Doug: Yeah.

Kevin: Is dark at 4:30 in the afternoon.

Doug: Yeah.

Kevin: People jaywalk or people crossing the street that you don't see because the weather is changing is raining and visibility is not good. And you hit a pedestrian is $25,000. Enough for their medical bills.

Doug: Now likely? Yeah, well, one of the things I found is that everybody I know who is in the insurance business has endless stories about really weird stuff. I, you know, it's probably just because you see it, you know, because you see it so much. Because, you know, an average person will have say, like maybe three to five really weird things happen in their life. Whereas every time something really weird happens, or probably 90% of the time when something really weird happens, there's an insurance claim. And so that means you anyone who's one of your clients, you will find out about 90% of all of their weird stuff. And so that's the thing is, you know, a regular person, you think, hey, what, what could happen, whereas, you know, you see this every day, and so you see all kinds of weird things happen.

Kevin: Right, rare things happen. I mean, everything from trees falling to natural disasters. You know, clients call out Oh, I have coverage for that, right? No. You know, you think like earthquake insurance? Oh, I have that coverage, right? Well, no, and then come with the policy or they assume something. 

Doug: Yeah.

Kevin: They must have like the misnomer of I have full coverage. What does that mean? You know, you have comp and collision, which constitutes full because you're, you have coverage to get your vehicle repaired up to the coverage limits. But if you have seen minimum coverage, you really have full coverage. Probably not.

Doug: Yeah.

Kevin: And in every circumstance isn't going to be the same where you have enough coverage. I mean.

Doug: Correct. Yeah.

Kevin: No, earlier I brought up what if you had pedestrian? Well, what if it turns fatal? Is there a coverage amount that's ever going to be enough to cover a loss like.

Doug: And well, and yeah, and then of course, if you're ended up being under covered, then you can get Yeah, you can end up getting a judgment and then that judgment could result in you know, in wage garnishments or you know, or if the judgment is enormous, you might have to declare bankruptcy in order to get out from underneath it, in which case, that's gonna that'll land on your credit for seven years, you know, could set you back quite a bit.

Kevin: Great. Oh, and also insurance, they take credit into consideration.

Doug: Jack up your rates for the next seven years.

Kevin: Great. It's, it's, uh, it's kind of crazy. I mean, the biggest thing like when you talk about these different coverage levels, you'd be blown away like you look at the state minimum auto insurance and let's just say for conversation pieces cost you $100 a month.

Doug: Yap. 

Kevin: Then you look at the $500,000 option, the mind single limit per accident, there's total 500,000. And it may cost you a, like $112. Yeah.  It's just like, for pennies on the dollar that make sure you have proper coverage, especially if you own property. Because that's the first thing that they're going to go after. If you don't have proper coverage.

Doug: I'm sure absolutely, absolutely. One, there was something you brought up. And I've been I've been wanting to talk about it. But I didn't want to interrupt you was because what we talked about was when you have a tree that falls.

Kevin: Yeah.

Doug: This is another conversation. And this is the my number two, aha, is that if a tree falls, you don't have a claim unless it hits a structure.

Kevin: Right.

Doug: And that structure, I think has to be it doesn't have to be a dwelling. But I think it can't be like plastic shed or something. It has to be

Kevin:  Here’s the deal chill. 

Doug: It has to be a building.

Kevin: You know, a lot of times you get neighbors, they get upset, oh, a tree fell, and it damaged my fence. And it's Well, did it hit a structure that hit an actual building or a shed?

Doug: Yeah.

Kevin: Shed? And then what's the value of? Because if you're going to file a claim, you know, most more often than not the deductible is $1,000. Well, if it's going to be a 15 $100 claim, does it even make sense to file a claim where the insurance company pays 500? And you're paying 1000? For this one fear alone?

Doug: Yeah.

Kevin: The Oregon no insurance company can deny you homeowners insurance? If you have one claim. If you have two claims. Now they can discriminate against you, not.

Doug: Your Yeah, then your population of insurance potential insurance goes down and your rates probably go through the roof.

Kevin: Yep. Because now you've got your specialty product to cover that. And when you look at it, and it's you know, homeowners insurance is for something catastrophic?

Doug: Yeah.

Kevin: No, it's a major claim is 20 $30,000 paid out? Not two or $300.

Doug: Yeah, and what's and just for, for clarification, what's the timeframe for how, how long have you in other words, you said, if you have two claims, you can be denied in Oregon.

Kevin: Within five years.

Doug: In five years, two plans in five years, okay.

Kevin: So and also, a lot of clients will think that, Oh, my gosh, tree just fell on my house, where my my outbuilding my shed, I need to file a claim, hold the phone, just wait, you don't need to jump to filing a claim. There's other things that you can do for one, seek advice from your trusted insurance advisor, and walk you through the process.

Doug: Yeah.

Kevin: Because you can always go back and file the claim. Even if there's like a small water loss, like let's say your toilet, water pipe breaks, well get someone out there to stop the continuous damage from going on, like a service master or something. And then they can assess what is the actual cleanup cost.

Doug: Got it.

Kevin: And if there needs to be any rebuilding or, or any damage is fixed. And then they can let you know about what that's going to cost. That way you can make an educated decision if it makes sense to file. Certain people. You know, money's very tight. 

Doug: Yeah.

Kevin: They need to file the claim. And that's what's going to be the best scenario for, hey, that's fine. That's why you have insurance. That's why you have a trusted advisor to walk you through that. Other clients. Hey, we don't want to file a claim we can spend two or $3,000 and get this fixed and not even worry about it. Because we don't want claims, you know that that chance of having another claim. Within the five years.

Doug: Yes.

Kevin: Yeah, it can get very expensive four or $5,000 a year for homeowners insurance that basically covers you for fire. And that's it, you know, so that can be frustrating. And, you know, I've a couple clients that have come across in my, in my time as an agent that were in that situation where they already had a couple claims filed and what are the options we need to make sure our asset is protected because it's the most valuable piece of property. We have.

Doug: Yeah.

Kevin: We would hate to see anything happen, lose it. So they're gonna bite the bullet and they're gonna pay the high premiums at three to four times five times the normal rate.

Doug: Yeah.

Kevin: And kind of suck it up for five years, unfortunately. 

Doug: Yeah.

Kevin: So they can start over.

Doug: Well, and then another thing that I think is important too, is, it's important to because you and I have this conversation, it's important to get your rates shopped, or to work with the broker. And while I'm going to get to this, but Kevin is a broker. And so I'm going to make sure that you have Kevin give out his his website and email address. Because one advantage of working with a broker versus say, just a captive agent, is that with a broker, you can get your rates shopped every year. And that's important. Because if you're with a user, if you if you say with the same company for like, yours, you'd think, hey, you're such a loyal customer. I stayed with the same company for 20 years, you know, that's Yeah, that's great. Yeah, it's great for the company, because they'll raise your rates by about two or 3% every year. And then after about, you know, 10 15 20 years, you'll find out you're paying double quoted for somebody else for the same coverage. It's really weird. But that just ends up being the way it works. So you actually have to quote out your book, every couple of few years. Otherwise, you'll end up your pricing Lotus ended up getting disconnected versus the market. So Kevin, I don't understand this, if you can help me get a bit.

Kevin: So when I first started out in this industry, I ran my own insurance agency for nine years. And it was always a head scratcher to me. Why would insurance companies treat potential new business better than lawyers loyal clients on their premium is just frustrating, because my hands are tied. And I know, knowing deep down that I all it would take is a client is very loyal to me, they want to stay with me, the rates don't line up anymore, they could go and chop it and I would lose a wonderful client. So I stepped away from the captive agency.

Doug: Yeah.

Kevin: Where it was one one company's products to the broker side, or the independent agent where, you know, the personalized side, we have at least a dozen companies that we can have access to, if not a little bit more, but really, we go through about eight on a regular basis, where, you know, there's so many dynamics within your insurance score and how your rate is determined.

Doug: Yeah.

Kevin: What it used to be, oh, well, I drive this type of vehicle about how much is it going to cost me I have a clean driving. But you can't even guess anymore, because now credit comes into play. Your insurance history comes into play how longevity with an...