Loss Of Use and “term” policies are among poorly understood concepts, while co-pays reflect industry’s attempt to cover costs of ever-advancing care.Everybody knows that insurance for horses and horse-related endeavors is important, but it’s also a subject that can be tricky for the lay person to understand. Insurance agents are on the front lines of helping horse owners, trainers and other professionals understand the various risks and protections. We asked three top equine insurance representatives to clarify what they see as common points of confusion.
Thanks to Donna Chopp Parker, Marnye Langer and Holly Lopes for their great contributions!
DONNA CHOPP PARKER: EQUINE INSURANCE
Loss Of Use
Loss Of Use is one of the most misunderstood coverages. I find that trainers recommend that their clients get this coverage, but they really don’t understand what is covered. It means your horse has to have a permanent disability to get a pay-out, not just be laid up for six or eight months.
Even with Full Loss Of Use, which is common with more expensive horses, the horse has to be unable to do the job, at any level, for which it was insured. If it’s a Grand Prix jumper, for example, that can still jump in the Adult Amateur classes, it’s unlikely the company will make a pay-out because there is “salvage” value there.
Another misconception is that you will be able to keep your horse after getting a Loss Of Use payment. These policies usually entail the company paying out a percent, often 50 to 60 percent, of the insured value, at which point the company has the right to take title of that horse and do with it as they see fit, including euthanize it. A lot of people think they will get a pay-out then can keep their horse and put him out to pasture. Most companies are willing to negotiate a lower pay-out and let you keep your horse, but they don’t have to.
Another thing with Loss Of Use, especially with horses of lower value, is that the pay-out is a percentage of the insured value. If a policy pays 50 percent on a horse valued at $20,000, and you have $10,000 in veterinary bills before you find out that there’s a Loss Of Use claim, that can be a real surprise.
Veterinary care has become more effective, more sophisticated and more expensive. A lameness 10 years ago, for example, would likely have required a veterinary visit, three or four x-rays, and two or three months of lay-up, for maybe a $1,000 bill. Today, the same lameness would involve that, plus many of the new possibilities including ultrasound, a bone scan, etc.
The insurance industry has not really kept pace with these cost increases, but we are now seeing a lot of companies add co-pays, either an overall co-pay on Major Medical insurance or a co-pay on diagnostic treatments.
Ten years ago, $10,000 in Major Medical probably cost about $300 a year. Today the same amount of coverage might cost a little more, but you are likely to use a lot more of it.
Co-pays are one way that insurance companies are trying to offset these costs, and encourage vets to be conservative in what they prescribe.
Another thing that insurance companies are now trying to adjust for is the trend toward owners not buying Mortality insurance for their horse’s full value. If they have a $50,000 horse, they might insure for only half that value. So, insurers are taking in less in Mortality insurance, but still paying out the same in Major Medical.
It’s Not Obamacare
Don’t confuse equine medical insurance with health insurance for humans. They are not the same thing. We are talking about property and casualty insurance.
Equine medical policies are “term” policies, which means they end and start again on the same day. Anything that happened during one term is now a pre-existing condition, and any aspect of the policy can be changed at renewal.
It’s really important to know when your policy expires and have your renewal paperwork in order. A lapse on coverage can affect open claims and, regardless, you don’t want to have any gaps in coverage.
My biggest advice to everybody is read your policy! At the very least, read any specific exclusions so that you are not confused about what is covered and what isn’t. This is always very clearly spelled out in the policy. And I always encourage people to have a conversation with an insurance agent before buying any policy and especially something online. Unless you are an insurance person, you may not always know what you are really getting.
MARNYE LANGER, MBA, CIC, AFIS: MANAGING DIRECTOR LEGISEQUINE
Agency vs Carrier
A lot of customers are not clear on the difference between an insurance agency and an insurance carrier. An agency works directly with the customer, understands his needs, and then identifies insurance carriers to obtain quotes for the customer. Insurance carriers by and large work directly with the agencies and do not sell directly to customers. As a result, the insurance agency helps advocate for the customer, helps explain different options to the customer, and can speak both “horse” and “insurance.”
With horse insurance there should be little to no difference on price from a specific insurance carrier regardless of the agency. The insurance carrier sets the price for its insurance products and the insurance agencies then represent those insurance products to the customer. There is no doubt that price is an important factor for most customers, but so is service, responsiveness and knowledge of the agent or agency, and claims support.
Complete & Accurate Info is Critical
When it comes to completing the forms about your horse’s health, whether you are just getting insurance for the first time or renewing your horse’s insurance, do not omit information. If there is a claim in the future, the insurance carrier will investigate your horse’s health history. If they discover that information has been omitted, your entire policy could be voided.
Horse owners are often concerned that any treatment their horse receives will automatically result in an exclusion being placed on their policy. This is not necessarily true. Having a good relationship with your insurance agent is valuable. Your agent cannot tell you how to answer questions, but your agent can help answer questions.
Trainers, like any business owner, are concerned with controlling costs. However, misstating business activities or understating business operations can cause a lot of problems if there is a claim.
Additionally, if a trainer is going to add a new business activity, check with your insurance agent to see what the cost of insurance will be. Actually, researching and analyzing insurance costs can help a trainer determine if a new activity is worth pursuing. For example, a trainer my wish to offer a summer program for kids. By researching insurance costs at the outset, the trainer may realize that 10 kids in the summer program will not be profitable, but 20 kids will be profitable. This kind of planning helps a trainer make better decisions and make more profit.
Liability coverage does not protect the customer from everything, however it is valuable coverage to have whether you just own a horse or you own a large stable or run a lesson business. Understanding what liability coverage gives you is very important.
In my opinion, liability coverage has three important factors. While there are nuances, the three general aspects of liability coverage are: 1) The holder of the policy gets protection if a third party gets hurt. 2) Policy holders gets protection if they, their employee, or their horse causes damage to something, like a car. 3) A liability policy generally provides legal defense to the policy holder, even for an accusation that may be spurious.
HOLLY LOPES, CIC, CISR: CHEVAL INSURANCE SERVICES, INC.
Care, Custody & Control
This is a moving target and some trainers don’t think they need it.
Let’s start with what it means. When a horse is placed into your care and custody, a higher degree of care is presumed by law to be given to that horse than if someone, say, rode their own horse in your arena then left. Because of this higher standard of care, liability policies and packages exclude damage to or death of a horse while it is in your care and custody.
A separate coverage is available to protect you from being held responsible for such damage or death of another’s horse. This is Care, Custody & Control, or CCC. It may be written by itself or in conjunction with a liability policy or ranch package. Limits are set on a per horse/per year basis, generally starting at $5,000 per horse and going as high as $100,000 per horse or more. A good agent can help you determine what level of coverage is right for you.
As for who needs CCC, you do if you are boarding horses, training or exercising horses for others, handling others’ horses for breeding or doing incidental hauling of horses. The rule of thumb is: if you are ever handling a horse belonging to someone else for a fee, you have a Care, Custody and Control exposure. Incidental hauling is when you haul horses for others strictly as a sideline to your main equestrian business, such as boarding or training. If you derive over 50 percent of your income from hauling or if you do not also have another equestrian business, you are probably a professional hauler and CCC will not cover that activity. Ask your agent about separate coverage for that.
In most states, Workers Compensation is a statutory requirement for anyone who employs a person and pays wages over a certain level per year. This applies whether the person works in and around your house or is connected to your business. It is not considered optional by the State Labor or Industrial Relations boards and there are severe penalties for employers who do not have it when an employee goes to report a work related injury or illness.
Workers Comp is designed to pay more than just medical bills related to an on-the-job injury or illness. It also pays a portion of lost wages, rehabilitation expenses and, when necessary, burial expenses. No other insurance will pay for these if they arise from a work related incident.
Some states require you to get insurance through a central bureau, others allow many carriers to offer coverages at either regulated or free market rates.
Residential employees can usually be covered under a complete ranch package very inexpensively. Residential employees are those employees whose work is directly connected to the running of the household (e.g., gardener, nanny, maid or housekeeper). All others, including any who care for horses, are considered commercial employees and a separate policy must be obtained.
Be aware that immigration status does not bar a Worker’s Comp claim on the part of your employee. If you employ an illegal alien, they are eligible for Workers Comp benefits just like legal residents and you are statutorily required to carry the coverage.
Director’s and Officer’s Coverage
Many clubs have no idea what this is for but think they need it. Often they don’t.
Directors and Officers Liability insurance is designed to protect your board members, officers and directors from claims or suits filed by your organization’s members or your company’s shareholders for perceived losses caused by actions taken or not taken by the directors and officers in their official capacity on behalf of the organization or company. In other words, if your board approves an action that winds up costing your organization lots of money, the members may want to hold the board members responsible. It has nothing to do with claims or suits brought by third parties for damages, that is covered under a Commercial General Liability policy.
Large companies with many shareholders, large organizations with many members, or any situation where the members have a large financial stake in the operations and decision of the directors and officers should consider this coverage. It can also be written to include Employment Practices Liability coverage for such things as sexual harassment. Fiduciary coverage can also be incorporated for an additional charge.
Everyone needs to get liability releases signed!
Some trainers think they do not need to have a written agreement or release with their clients because they sign one for the barn at which they are located. However, the barn’s release does nothing for the trainer. I have a case where the barn requires a release, the trainer also requires their agreement and the person who does exercising through the trainer also needs an agreement with the horse owners. So that’s three agreements because the horse owner is working with three different parties – boarding, training, exercising. It may seem like a hassle but it is the best way to protect everyone.
Rate Increases After a Claim
People think that insurance is some kind of annuity or investment and the insurance company should not raise their rates or non-renew if they have been claims-free for years and then have a significant claim. But insurance is an annual contract in which each party agrees to certain things.
The insurance company agrees to provide insurance on specific terms (known as the “policy conditions”) for a fee based on the amount of risk the insurer sees and the insured pays the fee as consideration that the insurer will answer if a claim occurs. If no claim occurs, they may choose to re-enter into the relationship for another year on the same or slightly adjusted terms (price and conditions may change).
Insurance does not build up for the insured, it is a product purchased one year at a time. So if a claim occurs, the insurer may now see that insured as too risky to insure at all and not renew, or they will only insure them for a higher price at renewal, which the insured can accept or reject.