There are multitude terms specific to any industry that are used by people in that industry. Occasionally the understanding of those terms can have signicant impacts on the general public. “Binding authority,” is a term used in the insurance world to extend the “handshake agreement” to our day-to-day practices. What binding authority allows your agent to do, is for most of the plain-vanilla home, auto and small business policies, once an agent has rated it with a company… you can then go into that agent’s office, sign some paperwork and pay the down payment – and you can be covered immediately at that instant. That “binding authority” is a courtesy allowed by standard & preferred insurance companies to their agents which allows them to immediately transact business and cover individuals.
This of course adds value to the local agent relationship. For policies that have circumstances that warrant further investigation, consideration and discussion between the agent and the “underwriter” at the insurance company, sometimes binding authority will be suspended on a case by case basis.
For the past week, as I get into my car to head into work in the mornings, I have to turn on my wipers to take what appears to be pollen off of my windshield. While there certainly is a good deal of pollen in the air right now at 7,800 feet in Santa Fe, unfortunately most of the “dust” on my car is not actually pollen, but is ash falling out of the air from the multiple wildfires happening in the southwest. This year seems to have been one of freakish “global winding” issues with massive tornados and extended extreme winds.
Santa Fe, New Mexico, which is about 250 miles from the Wallow fire burning on the AZ-NM border has smelled like a campfire and the air is thick with ash & smoke. Sunsets have been brilliant red – beautiful but deadly. The Wallow fire, the largest of several burning at the moment, is exacerbated by extreme high winds, which are causing burning embers to start new fires up to 3 miles ahead of the front lines. Inciweb reports that over 2,000 firefighters are working with 27 hotshot crews, 29 handcrews, 8 dozers, 141 fire engines, 46 watertenders and 20 helicopters. In one week it has burned a third of million acres and is considers 0% contained at the moment.
In the Southwest, we typically have visibility of 60 miles and over 300 days of sunshine a year. The Santa Fe Ski Area and Santa Fe Baldy are only about 15 miles away from my window, easily within viewing distance. For a week now, the air here, again 250 miles northeast of this fire, has still been so thick with smoke that the mountain is completely invisible. It is regular practice for our insurance companies to send us fax and email updates to “suspend binding authority” for new homeowners policies in zip codes that have current wildfires raging in them. Without that suspension of binding authority, an agent would never know, and the insurance company inspector wouldn’t have time to find out, whether somebody was potentially at risk of trying to insure-after-the fact.
Suspension of binding authority for auto policies is much rarer, however this week in our offices we have begun to see that some companies are now suspending binding authority for “physical damage” (comprehensive and collision) coverage for either new or existing auto policies that are within the affected Arizona zip codes. This is just another indication, specific to our industry, of the size & impact of the tragedies made worse by the lack of precipitation this season.
Considering this binding authority on “comprehensive and collision” brings to mind a story I heard just yesterday in a conversation with a friend. It seems that a relative had either seen an ad on television or received a flyer in the mail and decided to switch their auto policy coverage from an insurance agency to writing it themselves with a carrier who would quote and issue a policy online and promise them a discount for doing so. Be wary of discounts, and consider the value of the advice of a licensed insurance agent professional.
In this particular story, the person bought coverage and seemed to save a large amount of money. Not reading the descriptions of coverage on the website, and not examining closely their current “declarations pages” of their current policy (where an agent can understand more of the data than the average person), this couple decided to forego a coverage that didn’t seem to be needed, called “comprehensive and collision.” Their policy premium went down a staggering $50/month per vehicle and they were thrilled.
Thrilled that is, until 2 months later, when their vehicle, which they owned outright but was only about six years old, was run into while driving in a parking lot. Luckily, neither driver was injured, but the car was considered a “total loss.” They called their insurance company to make a claim, and were informed that because they did not have any physical damage coverage (comprehensive, collision — or even uninsured/underinsured motorist physical damage), there would be no settlement by the insurance company.
Stunned and financially impacted from having to purchase a new vehicle, this couple has now returned to having an insurance policy written by an independent insurance agent and is definitely now asking questions about their property to make sure that they are covered.
The lessons here are to speak with your insurance agent. Don’t leave any stone unturned. Go ahead and ask your questions. Your insurance agent’s job is to protect your financial well being, piece of mind, to protect your assets, and to protect you. Their (our) advice is well worth it!